Bailey, Inc., is considering buying a new gang punch that would allow them to pr
ID: 2638414 • Letter: B
Question
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $60,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $2,500 using the gang punch, but annual raw material costs would decrease $14,000. MARR is 4.0 %/year.
What is the present worth of this investment?
What is the decision rule for judging the attractiveness of investments based on present worth?
Should Bailey buy the gang punch?
Explanation / Answer
So the Present Value is $127,861.46.
The decision rule is NPV, or in this case, PV minus the initial cost, or $67,861.46
Bailey should buy the gang punch since NPV is greater than 0.
$127,861.46 PV ($60,000.00) Initial Cost $67,861.46 NPVRelated Questions
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