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In: Economics

A machine costs $35,000 to buy and $5,000 per year to operate and maintain. It will...

A machine costs $35,000 to buy and $5,000 per year to operate and maintain. It will have a salvage value of $8,000 in 9 years. It will generate $10,000 per year in net revenue for the first four years, and then the revenue will fall by $1,000 each year after. If the company purchasing the machine uses a MARR of 7% to make project , find the NPW, NFW, and AW. Is this project worth undertaking if no loss is expected?

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MARR 7%
Year Initial cost Annual revenue Annual cost Salvage value Net Cash flow
0 -35000 -35000
1 10000 -5000 5000
2 10000 -5000 5000
3 10000 -5000 5000
4 10000 -5000 5000
5 9000 -5000 4000
6 8000 -5000 3000
7 7000 -5000 2000
8 6000 -5000 1000
9 5000 -5000 8000 8000
NPW -7033.99
NFW -12,931.71
AW -1,079.62

This project is not worth undertaking as NPV is negative

Showing formula

MARR 0.07
Year Initial cost Annual revenue Annual cost Salvage value Net Cash flow
0 -35000 =B3+C3+D3+E3
1 10000 -5000 =B4+C4+D4+E4
2 10000 -5000 =B5+C5+D5+E5
3 10000 -5000 =B6+C6+D6+E6
4 10000 -5000 =B7+C7+D7+E7
5 =C7-1000 -5000 =B8+C8+D8+E8
6 =C8-1000 -5000 =B9+C9+D9+E9
7 =C9-1000 -5000 =B10+C10+D10+E10
8 =C10-1000 -5000 =B11+C11+D11+E11
9 =C11-1000 -5000 8000 =B12+C12+D12+E12
NPW =NPV(B1,F4:F12)+F3
NFW =FV(B1,9,0,-F13)
AW =PMT(B1,9,-F13)

Rahul Sunny answered 2 years ago
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