Question

In: Economics

Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit...

Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $110,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $3,000 using the gang punch, but annual raw material costs would decrease $12,000. MARR is 4.25 %/year. What is the present worth of this investment? What is the future worth of this investment?

Solutions

Expert Solution

Future worth of investment = -110000*(F/P,4.25%,15) + (12000 -3000)*(F/A,4.25%,15)

= -110000*((1 + 0.0425)^15) + 9000*(((1 + 0.0425)^15-1)/0.0425)

= -110000*((1.0425)^15) + 9000*(((1.0425)^15-1)/0.0425)

= -110000*1.866986 + 9000*20.399660

= -21771.52

Rahul Sunny answered 2 years ago
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