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You are evaluating the purchase and installation of a new machine for your company. The purchase...

You are evaluating the purchase and installation of a new machine for your company. The purchase cost is $20,000 and its installation cost is $5,000. Its maintenance cost is estimated to be $2,000 per year starting EOY 1, increasing by 5% per year for 14 additional years. You estimate the additional revenue after installation to be $10,000 per year starting EOY 1 and continuing for 4 additional years. You estimate revenue to increase to $15,000 starting EOY 6 and increasing by $500 each year for the next 9 years. At the end of 15 years you estimate the machine will be sold for $5,000. Your company’s MARR is 15%.

  1. What is the present worth of all cash flows evaluated at MARR?
    1.   Based on your PW would you recommend the purchase and installation of the machine?
    2.     Why or why not? Be very specific and state the basis for your decision to recommend or reject?
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