A certain engine lathe can be purchased for $390,000 and depreciated over three

Question

A certain engine lathe can be purchased for $390,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of $260,000 (time zero dollars) per year. It is a policy of the company that the annual revenues will be increased each year to keep pace with the general inflation rate, which is expected to average 6.5% per year. Labor, materials, and utilities totaling $65,000 (time 0 dollars) per year are all expected to increase at 12% per year. The firm

Explanation / Answer

Depreciation = 390,000/3=130000

after-tax equivalent present worth = -390000 + 174460/1.30 + 169218.4/1.30^2 + 163347.8/1.30^3= -$81,320

0 1 2 3 Initial cost -390000 Revenue 276900 276900 276900 Costs -72800 -81536 -91320.3 Depreciation -130000 -130000 -130000 Net income 44460 39218.4 33347.81 Cash flow 174460 169218.4 163347.8 npv ($81,320.38)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.