You are considering purchasing a CNC machine which costs $130,000. This machine

Question

You are considering purchasing a CNC machine which costs $130,000. This machine will have an estimated service life of 9 years with a net after-tax salvage value of $13,000. Its annual after-tax operating and maintenance costs are estimated to be $47,000. To expect an 15% rate of return on investment, what would be the required minimum annual after-tax revenues? Click the icon to view the interest factors for discrete compounding when i= 15% per year The required minimum annual after-tax revenues would be $thousand. (Round to one decimal place.) More Info ingle Payment ies Compound Sinking Capital Recovery Factor Compound Pres Present Amount Amount Factor 0 Fund 0 Factor Factor Factor Factor (FIP, i, N) (P/F, i, N) (FIA, i, N) (A/F, i, N) (P/A, i, N) (A/P, i, N) 1.1500 1.3225 1.5209 1.7490 2.0114 0.8696 0.7561 0.6575 0.5718 0.4972 1.0000 2.1500 3.4725 4.9934 6.7424 1.0000 0.4651 0.2880 0.2003 0.8696 1.6257 2.2832 2.8550 3.3522 1.1500 0.6151 0.4380 0.3503 0.2983 4 2.3131 2.6600 3.0590 3.5179 4.0456 0.4323 0.3759 0.3269 0.2843 0.2472 8.7537 11.0668 13.7268 16.7858 20.3037 0.1142 0.0904 0.0729 0.0596 0.0493 3.7845 4.1604 4.4873 0.2642 0.2404 0.2229 0.2096 0.1993 10 5.0188 0.2149 0.1869 0.1625 0.1413 0.1229 0.0411 0.0345 0.0291 0.0247 0.0210 0.1911 4.6524 5.3503 6.1528 7.0757 8.1371 24.3493 29.0017 34.3519 40.5047 47.5804 5.2337 5.4206 5.5831 12 13 0.1791 15 5.8474

Explanation / Answer

We can look at it as a PMT problem,
PV = 130,000 - 13,000/(1.15^9) = 126,304.59
Rate = 15%
NPER = 9
PMT = PMT (15%,9,126304.59) = 26,470.16

Adding back the Annual Costs, we get annual revenues = 26,470.16 + 47,000 = 73,470.16

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