Question

"Larson Manufacturing is considering purchasing a new injection-moulding machine to expand its production capacity. There is a one-time cost of $32,600 to perform site preparation for the machine, which will occur immediately. With the new injection-moulding machine installed, Larson Manufacturing expects to increase its annual revenue by $45,000. The machine will be used for 5 years and can be salvaged for $21,000 at the end of 5 years. If the company's MARR is 15.4%, what is the maximum amount that should be spent on purchasing the new injection-moulding machine?"

Answer 1

Year	Installation cost	Revenue	Salvage	Cash flows	Discount rate @ 15.4%	Present value
0	$ (32,600.00)			$ (32,600.00)	1.0000	$ (32,600.00)
1		$ 45,000.00		$   45,000.00	0.8666	$    38,994.80
2		$ 45,000.00		$   45,000.00	0.7509	$    33,790.99
3		$ 45,000.00		$   45,000.00	0.6507	$    29,281.62
4		$ 45,000.00		$   45,000.00	0.5639	$    25,374.02
5		$ 45,000.00	$ 21,000.00	$   66,000.00	0.4886	$    32,248.90
	Maximum investment					$ 127,090.33
Discount rate =1/(1+MARR)^year
Maximum investment is the present value of cash flows to be received in 5 years.