2 Q5 poins) ABC Inc. must purchase a welding machine. The following is known abo
ID: 1120412 • Letter: 2
Question
2 Q5 poins) ABC Inc. must purchase a welding machine. The following is known about the machine and about possible cash flows. 30 | p-40 p.30 First cost Annual savings Annual costs Actual salvage value 40,000 $40,000 $40,000 8,000 6,000 6,500 2,000 12,000 4,000 5,000 8,000 5,000 The machine is expected to have a useful life of 8 years. The company has a MARR of 7%. Determine the NPW of the machine. (2.5 points) What is the future worth (in Year 10) of S23,000 deposited at the end of Year 3 plus $28,000 deposited at the end of Year 5, and S20,000 deposited at the end of Year 8 at an interest rate of 6% per year? (2.5 points) An electronics firm invested $60,000 in a precision inspection device. It cost $4000 to operate and maintain in the first year and S3000 in each of the subsequent years At the end of 4 years, the firm changed their inspection procedure, eliminating the need for the device. The purchasing agent was very fortunate in being able to sell the inspection device for S60,000, the original price. The plant manager asks you to compute 3. 4. the equivalent uniform annual cost of the device during the 4 years it was used. Assume interest at 5% per year.Explanation / Answer
2.
When P = .3
First cost = $40000
Net annual savings = 2000 – 12000 = -$10000
Salvage value = $4000
R = 7%
n = 8 years
Net present worth (NPW) = -10000*(1-1/(1+7%)^8)/.07 + 4000/1.07^8 – 40000
Net present worth (NPW) = -$97384.9
When P = .4
First cost = $40000
Net annual savings = 5000 – 8000 = -$3000
Salvage value = $5000
R = 7%
n = 8 years
Net present worth (NPW) =-3000*(1-1/(1+7%)^8)/.07 + 5000/1.07^8 – 40000
Net present worth (NPW) = -$55003.8
When P = .3
First cost = $40000
Net annual savings = 8000 -6000 = $2000
Salvage value = $6500
R = 7%
n = 8 years
Net present worth (NPW) = 2000*(1-1/1.07^8)/.07 + 6500/1.07^8 – 40000 = -$24274.3
Then,
The expected NPW = -97384.9*.3 + (-55003.8)*.4 + (-24274.3)*.3
The expected NPW = -$58499.3
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