X has been its g work to Company Y for $46,000 per machine per year. Company X e

Question

X has been its g work to Company Y for $46,000 per machine per year. Company X estimates that by ing a $440,000 maintenance facility with a life of 18 years and a salvage value of $55,000 at the end of its life, it could handle its own overhauling at a cost of only $16,000 per machine per year. What is the minimum annual number of machines (as an integer) that Company X must operate to make it own facility? (Assume an interest rate of 13%.) Hint: calculate the annual equivalent cost of the maintenance facility." ly feasible to build its

Explanation / Answer

Given interest rate @13%

First we have to calcuate whether it is economically feasible yo buy machine or noy

The annual savings by building a maintenance facility will be $46000-$16000 = $30000 per machine per year

The cost of building maintenance facility is $440000

Let x be the minimum number of machines that should be operated per year

then

$440000 = X*$30000*PVF for 18 years @ 13%+ 55000*pv factor of 18th year @13%

$440000 =X*30000*6.8399 + 55000*0.1108123

$433905 = 205197.1587X + 6094.677

$433905 = 205197X

X = 2.114576

i.e minimum 3 machines

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.