Question

A printed-circuit-board assembly robot can be purchased for $210,000 and depreciated with the SL method over 5 years to a salvage value equal to 10% of the capital investment at the end of year 5. This machine will be used to produce electronic circuit boards that will generate revenues each year. The estimated annual expenses, in year zero dollars, is $35,000 per year. This expense is estimated to increase at the rate of 5% per year. The firm’s before-tax MARR is 26% per year. What uniform annual revenues (before taxes), in actual dollars, would the machine need to generate for the firm to break even on the investment. (Enter your answer as a number without the dollar $ sign.)

Answer 1

Answer;

Break Even is a point at which NPV = $0

Annual Cash Inflows - Annual Cash outflows = 0

Annual Cash Inflows = Annual Cash outflows

Annual Revenues * PVAF(0.26,5) + Salvage / (1 + MARR)^5 = Initial Investment + (Expenses in year 1 ) / (1 + MARR) + (Expenses in year 2) / (1 + MARR)^2 + (Expenses in year 3) / (1 + MARR)^3 + (Expenses in year 4) / (1 + MARR)^4 + (Expenses in year 5) / (1 + MARR)^5

Annual Revenues PVAF(0.26,5) + 210000 10% / (1 + 0.26)^5 = 210000 + (35000 1.05) / (1 + 0.26) + (35000 1.05^2) / (1 + 0.26)^2 + (35000 1.05^3) / (1 + 0.26)^3 + (35000 1.05^4) / (1 + 0.26)^4 + + (35000 * 1.05^5) / (1 + 0.26)^5

Annual Revenues * PVAF(0.26,5)+ 6612.50 = 210000 + 104671

Annual Revenues* 2.8636 = 308059

Annual Revenues = $116907