Question

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 whether or not the machine should be purchased?

Answer 1

Initial cost = $750,000 Annual revenue = $250,000. Annual operating and maintenance cost = $70,000. One upgradation in year 4 = $150,000. Usage time for machine = 8 years, salvage value = $30,000, MARR = 10%.

Find the net present worth

NPW = -750,000 + (250,000 - 70,000)(P/A, 10%, 8) - 150,000(P/F, 10%, 4) + 30,000(P/F, 10%, 8)

= -750,000 + 180,000*5.334926 - 150,000*0.683013 + 30,000*0.466507

= $121,829

Since net worth is positive at the given MARR, we should purchase the machine.