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
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.
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