Question

A machine costs $750,000 to purchase and will produce $250,000 per year revenue. Annual operating and...

A machine costs $750,000 to purchase and will produce $250,000 per year revenue. Annual operating and maintenance cost is $70,000. The machine will have to be upgraded in year 4 at a cost of $150,000. The company plans to use the machine for 8 years and then sell it for scrap for which it expects to receive $30,000. The company MARR interest rate is 10%. Compute the net present worth to determine whether or not the machine should be purchased?

Homework Answers

Answer #1

Annual net benefit ($) = Annual revenue - Annual operating expense = 250,000 - 70,000 = 180,000

Net Present Worth ($) = - 750,000 + 180,000 x P/A(10%, 8) - 150,000 x P/F(10%, 4) + 30,000 x P/F(10%, 8)

= - 750,000 + 180,000 x 5.3349** - 150,000 x 0.6830** + 30,000 x 0.4665**

= - 750,000 + 960,282 - 102,450 + 13,995

= 121,827

**P/A(r%, N) = [1 - (1 + r)-N] / r

P/A(10%, 8) = [1 - (1.10)-8] / 0.10 = (1 - 0.4665) / 0.1 = 0.5335 / 0.1 = 5.3349

P/F(r%, N) = (1 + r)-N

P/F(10%, 4) = (1.1)-4 = 0.6830

P/F(10%, 8) = (1.1)-8 = 0.4665

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A machine costs $750,000 to purchase and will produce $250,000 per year revenue. Annual operating and...
A machine costs $750,000 to purchase and will produce $250,000 per year revenue. Annual operating and maintenance cost is $70,000. The machine will have to be upgraded in year 4 at a cost of $150,000. The company plans to use the machine for 8 years and then sell it for scrap for which it expects to receive $30,000. The company MARR interest rate is 10%. Compute the net present worth to determine whether or not the machine should be purchased?...
PLEASE SOLVE NOT USING EXCEL OR A TABLE A machine costs $750,000 to purchase and will...
PLEASE SOLVE NOT USING EXCEL OR A TABLE A machine costs $750,000 to purchase and will produce $250,000 per year revenue. Annual operating and maintenance cost is $70,000. The machine will have to be upgraded in year 4 at a cost of $150,000. The company plans to use the machine for 8 years and then sell it for scrap for which it expects to receive $30,000. The company MARR interest rate is 10%. Compute the net present worth to determine...
A machine costs $260,000 to purchase and will provide $60,000 a year in benefits. The company...
A machine costs $260,000 to purchase and will provide $60,000 a year in benefits. The company plans to use the machine for 12 years and then will sell the machine for scrap, receiving $15,000. The company interest rate is 9%. What is the present value of buying the machine, receiving annual benefits, and then selling the machine??
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...
The machine that was used to produce notebooks cost $750,000 when it was purchased new one...
The machine that was used to produce notebooks cost $750,000 when it was purchased new one year ago. It has an expected life span of 10 years. The income statement showed the straight line deprecation rate as 10%. Using double declining balance depreciation, the book value of the machine at the end of year two is __________. a.)$330,000 b.)$480,000 c.)$600,000 d.)$150,000
Question 1: A company needs to purchase a new machine to produce parts. There are two...
Question 1: A company needs to purchase a new machine to produce parts. There are two options. Alternative A costs $75,000 with a maintenance cost of $2,000 per quarter. The revenue generated from the machine is $2,000 every month. The life of the machine is expected to be 20 years. At the end of twenty years, the machine should be worth no more than 10% of its cost. Alternative B costs $50,000 with a maintenance cost of $1,000 per quarter....
Question 1: A company needs to purchase a new machine to produce parts. There are two...
Question 1: A company needs to purchase a new machine to produce parts. There are two options. Alternative A costs $75,000 with a maintenance cost of $2,000 per quarter. The revenue generated from the machine is $2,000 every month. The life of the machine is expected to be 20 years. At the end of twenty years, the machine should be worth no more than 10% of its cost. Alternative B costs $50,000 with a maintenance cost of $1,000 per quarter....
Machine X has an initial cost of $12,000 and annual maintenance of $700 per year. It...
Machine X has an initial cost of $12,000 and annual maintenance of $700 per year. It has a useful life of four years and no salvage value at the end of that time. Machine Y costs $22,000 initially and has no maintenance costs during the first year. Maintenance is $200 at the end of the second year and increases by $200 per year thereafter. Machine Y has a useful life of eight years and an anticipated salvage value of $5,000...
Ennis Ltd is considering the purchase of a machine to produce a new product. The machine...
Ennis Ltd is considering the purchase of a machine to produce a new product. The machine will cost the business £450,000 and has an expected life of five years. Annual operating profits from the machine are expected to be as follows The new machine will be depreciated using the straight-line method and the estimated disposal value at the end of its useful life is £70,000. The business has a target accounting rate of return of 25% for new investment projects....
A machine for refining operation was purchased 7 years ago for 160,000 SAR. Last year a...
A machine for refining operation was purchased 7 years ago for 160,000 SAR. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed . The equipment is estimated to have a value of 8,000 SAR now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of 43,000 SAR which will make it usable for up to 2 more years. Its operating...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT