A new machine will cost $25,000. The machine is expected to last 4 years and hav

Question

A new machine will cost $25,000. The machine is expected to last 4 years and have no salvage value. If the interest rate is 10%, what is the expected value of the present worth for this purchase?

Interest Factor Calculator

A new machine will cost $25,000. The machine is expected to last 4 years and have no salvage value. If the interest rate is 10%, what is the expected value of the present worth for this purchase?

p 0.2 0.4 0.4 Annual savings $7000 $8500 $9500

Interest Factor Calculator

$2261 $6050 -$43 $3343

Explanation / Answer

Expected value of the annual saving = .2*7000+.4*8500+.4*9500 = $8600

PV = -25000+8600*PVIFA(10%,4) where PVIFA is present value interest annuity factor

PV = -25000+8600*3.1699 = $2261 (option A)

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