Question
In: Finance
A company is considering purchasing a new technology that requires an initial capital investment of $9,000....
A company is considering purchasing a new technology that requires an initial capital
investment of $9,000. Annual revenues from the technology are predicted to be $6,500, and
annual expenses will be $4,000. The equipment has an estimated life of 11 years, at which time
the salvage value is expected to be $1,000. The MARR for the company is 15%.
a. Using the annual worth (AW) method, determine whether purchasing the equipment is
economically justified.
b. Repeat part (a) using the internal rate of return (IRR) method.
c. Using the present worth (PW) method, determine the break-even time period after which
purchase of the equipment generates a profit. (Find N when PW = 0)
Solutions
Expert Solution
Information given is
Initial Capital investment = $9000
Annual Net Cash inflow = $6500- $4000 = $2500
Salvage value = $1000
n = 11 years
MARR = 15%
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