Question

An engineer uses an economic analysis to determine if is worth to purchase the machine. The rate of return is 6% . What is the future worth of the machine? Initial cost = $9,000 Estimated life = 8 years Salvage value = 900 Annual maintenance cost = $450 Annual maintenance income = 2,450 Income gradient = 100

Answer 1

Initial cost = $9,000

Annual maintenance cost = $450

Annual maintenance income = $2,450

Income gradient = 100

Salvage value = 900

Interest rate = 6%

Estimated life = 8 years

Calculate the Future Worth -

Future worth = -Initial cost (F/P, i, n) - Annual maintenance cost (F/A, i, n) + Annual maintenance income (F/A, i, n) + income gradient (F/G, i, n) + Salvage value

Future worth = -$9,000(F/P, 6%, 8) - $450 (F/A, 6%, 8) + $2,450 (F/A, 6%, 8) + 100 (F/G, 6%, 8) + $900

Future Worth = (-$9,000 * 1.5938) - ($450 * 9.8974) + ($2,450 * 9.8974) + ($100 * 31.6244) + $900

Future Worth = -$14,344.2 - $4,453.83 + $24,248.63 + $3,162.44 + $900

Future Worth = $9,513.04

The Future Worth of the machine is $9,513.04

The future worth of machine is positive.

So,

The machine should be purchased.