A new machine will last for ten years. It will save the company $9984 per year...

A new machine will last for ten years. It will save the company $9984 per year and the savings will increase by $2660 each year. What is the present worth of this machine assuming an interest rate of 7.4%/year compounded annually.

Solutions

Expert Solution

year	Cash flow	Present Value factor	Present Value
1	$ 9,984.00	0.931098696	$ 9,296.09
2	$ 12,644.00	0.866944783	$ 10,961.65
3	$ 15,304.00	0.807211157	$ 12,353.56
4	$ 17,964.00	0.751593256	$ 13,501.62
5	$ 20,624.00	0.699807501	$ 14,432.83
6	$ 23,284.00	0.651589852	$ 15,171.62
7	$ 25,944.00	0.606694462	$ 15,740.08
8	$ 28,604.00	0.564892422	$ 16,158.18
9	$ 31,264.00	0.525970598	$ 16,443.94
10	$ 33,924.00	0.489730538	$ 16,613.62

		Present Worth=	$ 140,673.20

Present worth is sum of the present value of all cash flows defined at a given year.

Present Value factor = 1/(1+interest rate)^t. where t = years

Below are the calculations in excel -

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Your company is considering whether to invest in a new machine that costs $6m but will save the company $2.5m per year for the three years of its expected life

Your company is considering whether to invest in a new machine that costs $6m but will save the company $2.5m per year for the three years of its expected life. It will require an additional investment in inventory of $200 000. The marginal tax rate for companies 30% and depreciation for tax purposes is calculated on a straight line basis over three years. The machinery has an expected salvage value of $500 000. To keep the calculations simple, you decide...

a)You plan to save $5,400 per year for the next 12 years. After the last deposit,...

a)You plan to save $5,400 per year for the next 12 years. After the last deposit, you will keep the money in the account for 5 more years. The account will earn an interest rate of 5.7 percent. How much will there be in the account 17 years from today? $148,368.04 $89,517.93 $30,258.50 $229,712.61 $118,109.54 B)Your grandparents put $12,400 into an account so that you would have spending money in college. You put the money into an account that will...

The ABC company is considering the purchase of a new machine that will last 5 years...

The ABC company is considering the purchase of a new machine that will last 5 years and cost $100,000; maintenance will cost $12,000 per year. If the interest rate is 10% per year, compounded quarterly, a. how much money should the company set aside for this machine b. what is the future value, at the end of year 5, of the given cash flows

A company is evaluating the replacement of an old machine with a new one last year...

A company is evaluating the replacement of an old machine with a new one last year the company hired a consultant to conduct a feasibility study about this replacement project which cost them $1,000,000 at that time. The consulting fees were expensed last year The old machine was purchased 3 years ago for $4 million and was being depreciated using MACRS 5.yoar class (20%, 32% 19 2%, 11 52% 11.52% and 5 76%) The old machine can be sold for...

A company is evaluating the replacement of an old machine with a new one. Last year,...

A company is evaluating the replacement of an old machine with a new one. Last year, the company hired a consultant to conduct a feasibility study about this replacement project, which cost them $500,000 at that time. The consulting fees were expensed last year. The old machine was purchased 2 years ago for $3 million and was being depreciated using MACRS 5-year class (20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%). The old machine can be sold for $1 million at...

Jayne Company acquires a new machine (ten-year property) on January 15, 2013, at a cost of...

Jayne Company acquires a new machine (ten-year property) on January 15, 2013, at a cost of $180,000. Jayne also acquires another new machine (seven-year property) on November 5, 2012, at a cost of $30,000. No election is made to use the straight-line method. The company does not make the § 179 election. Jayne takes additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2013. a. $116,143. b. $11,143. c. $22,287. d. $132,858. e....

A machine, costing $30,000 to buy and $2,500 per year to operate, will save mainly labor...

A machine, costing $30,000 to buy and $2,500 per year to operate, will save mainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the end of seven years is $5,500. 1f a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine? If the service life is just five years, instead of seven years, what is the minimum required annual savings in...

A machine, costing $32,000 to buy and $2,700 per year to operate. will save mainly labor...

A machine, costing $32,000 to buy and $2,700 per year to operate. will save mainly labor expenses in packing over seven years. The anticipated salvage value of the machine at the end of seven years is $4,500. (a) if a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine? (b) The service life us just five years, instead of seven years, what is the minimum required annual savings...

A specialized automatic machine costs $100,000 and is expected to save $19,700 per year while in...

A specialized automatic machine costs $100,000 and is expected to save $19,700 per year while in operation. Using a 5 % interest rate, what is the discounted payback period (in years).

Brookite Company (BC) wants to purchase a new machine costing $500,000 which will last 12 years...

Brookite Company (BC) wants to purchase a new machine costing $500,000 which will last 12 years to make Hoverboard – a new product. Because BC deals in products that are consumer oriented where tastes change rapidly, they assume a useful life for their products of 5 years. This machine could be sold for $200,000 at the end of Year 5 or for $50,000 at the end of 12 years. Brookite will have to increase its inventory and accounts receivable by...

Subjects