1. A company is considering establishing a new machine to automate a packaging p
ID: 1106270 • Letter: 1
Question
1. A company is considering establishing a new machine to automate a packaging process. The machine will save $50,000 in labor annually. The cost of the machine is $200,000 and will be used for 10 years. It has a salvage value of $10,000 at the end of the useful life. The annual maintenance cost will be $9,000. If the rate of return is 10%, do you recommend buying the machine? 2. A manufacturing company expects that the fixed cost for its operation will be $1,400,000 this year. If this increases by $100,000 each year, what is the EUAC for a 10-year period, assuming 12% interest rate? 3. A machine costs $20,000 and has a 5-year useful life. At the end of the of the 5 years, it can be sold for $4,000. If annual interest is 8% compounded semiannually, what is the EUAC of the machine?Explanation / Answer
1.
annual cash flow=50000-9000=41000
Net present value of the machine
=-200000+41000/1.10^1+41000/1.10^2+41000/1.10^3+41000/1.10^4+41000/1.10^5+41000/1.10^6+41000/1.10^7+41000/1.10^8+41000/1.10^9+41000/1.10^10+10000/1.10^10
=55782.68
as NPV is positive and higher than zero, buy the machine.
the above is the answer.
we do only one question based on Chegg rule.
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