Question
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Merry Industries is considering a new piece of equipment for a project lasting 10 years with...
Merry Industries is considering a new piece of equipment for a project lasting 10 years with details as shown below. The costs and benefits are expected to keep increasing with the inflation rate even when a new machine is put into operation. Taking these into account, what is the annual worth that the company can expect from the machine?
| Initial cost | $65,000 | |
| MARR | 12% | p y c y |
| Inflation rate | 3% | p y c y |
| Life | 7 | years |
| Project life | 10 | years |
| Machine value today with life of 3 years | $24,500 | |
| Machine value today with life of 7 years | $13,500 | |
| First year costs | $7,200 | |
| First year benefits | $25,800 |
Solutions
Expert Solution
Annual worth of the machine = 6,051.28
It is to be noted that since the project life is 10 years and machine life is 7 years, at the end of Year 7, the first machine will be sold and second machine will be bought which will be sold at the end of Year 10.
All values have to be adjusted for annual inflation, as shown in the table below.
jeff jeffy answered 1 year agoRelated Solutions
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