Question
In: Economics
The initial cost of a machine is $2,400. The machine provides an annual revenue of $750....
The initial cost of a machine is $2,400. The machine provides an annual revenue of $750. The salvage value of the machine is $50. If the machine has a life span of 5 years, what is the rate of return on this machine? Is the machine worth purchasing if the minimum attractive rate of return (MARR) is 18% per year?
Solutions
Expert Solution
Initial Cost of machine = $2,400
Annual revenue = $750
Salvage Value = $50
Life = 5 years
MARR = 18% per year
Present worth of annual revenue is calculated as: [Revenue / (1 + MARR)^Year]
Present value of salvage after 5 years = [50 / 1.18^5] = 21.85
As initial cost is more than present worth of revenue + present worth of salvage, this machine is not worth purchasing.
Rahul Sunny answered 2 years agoRelated Solutions
The initial cost of a machine is $2,400. The machine provides an annual revenue of $750....
The
initial cost of a machine is $2,400. The machine provides an annual
revenue of $750. The salvage value of the machine is $50. If the
machine has a life span of 5 years, what is the rate of return on
this machine? Is the machine worth purchasing if the minimum
attractive rate of return (MARR) is 18% per year?
PLEASE HELP. DO NOT USE EXCEL. solve by hand
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