Question

In: Economics

You have purchased a machine costing ​$27 comma 00027,000. The machine will be used for two​...

You have purchased a machine costing

​$27 comma 00027,000.

The machine will be used for two​ years, and at the end of this​ time, its salvage value is expected to be

​$12 comma 00012,000.

The machine will be used

4 comma 0004,000

hours during the first year and

6 comma 0006,000

hours during the second year. The expected annual net savings will be

​$34 comma 00034,000

during the first year and

​$40 comma 00040,000

during the second year. If your interest rate is

1414​%,

what would be the equivalent net savings per machine​ hour?

Solutions

Expert Solution

Given data:

Cost of machine = $27,000

Useful life = 2 years

Salvage value = $12,000

Usage in 1st year = 4000 hours

Usage in 2nd year = 6000 hours

Savings in 1st year = $34,000

Savings in 2nd year = $40,000

Interest Rate = 14% = 0.14

Net savings per machine per hour = Net present value / Total usage

=42836.87/(4000+6000) = $4.28 per machine​ hour

Please don't forget to rate the answer if its helpful, thank you.

Rahul Sunny answered 1 month ago
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