Question

In: Finance

ABC company has decided to purchase a new printing machine. This Machine has a 9-yer life...

ABC company has decided to purchase a new printing machine. This Machine has a 9-yer life and will cost 750,000 to install the new machine. Total operation costs of the machine per year is 10,000. Calculate the EAC, if the discount rate is 11.25%.

Solutions

Expert Solution

Step 1 is to find the PV of the annual operations cost:

We are given the following information:

PMT $            10,000.00
r 11.25%
n 9
frequency 1

We need to solve the following equation to arrive at the required PV

So the PV of the annual costs is $54836.52

Step 2: We add the same to the initial cost of 750000 to get a total cost of 750000+54836.52 =  $804,836.52

Step 3: We find the annual PMT that discounts to this PV:

We are given the following information:

r 11.25%
n 9
frequency 1
PV $        8,04,836.52

We need to solve the following equation to arrive at the required PMT:

So the EAC or the equated annual cost is 146770.16


Related Solutions

ABC Printing Corporation is considering purchasing a new printing machine. The following information relates to the...
ABC Printing Corporation is considering purchasing a new printing machine. The following information relates to the proposed machine: The proposed machine will be disposed at the end of its usable life of four years at an estimated sale price of K800 000. The machine has an original purchase price of K8 000 000, installation cost of K500 000, and will be depreciated under the five year WTA using the rates provided below. WTA Depreciation Schedule Year Depreciation Rate 1 25%...
Wolf Corporation has decided to purchase a new machine that costs $4.5 million. The machine will...
Wolf Corporation has decided to purchase a new machine that costs $4.5 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 30%. The Sur Bank has offered Wolf a four-year loan for $4.5 million. The repayment schedule is four-yearly principal repayments of $1,125,000 and an interest charge of 7% on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest...
Wolfson Corporation has decided to purchase a new machine that costs $2.6 million. The machine will...
Wolfson Corporation has decided to purchase a new machine that costs $2.6 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 22 percent. The Sur Bank has offered Wolfson a four-year loan for $2.6 million. The repayment schedule is four yearly principal repayments of $650,000 and an interest charge of 7 percent on the outstanding balance of the loan at the beginning of each year. Both principal...
Wolfson Corporation has decided to purchase a new machine that costs $4.1 million. The machine will...
Wolfson Corporation has decided to purchase a new machine that costs $4.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 40 percent. The Sur Bank has offered Wolfson a four-year loan for $4.1 million. The repayment schedule is four yearly principal repayments of $1,025,000 and an interest charge of 7 percent on the outstanding balance of the loan at the beginning of each year. Both principal...
MARC Printing Ltd. is considering the purchase of a new copy machine. The machine will cost...
MARC Printing Ltd. is considering the purchase of a new copy machine. The machine will cost $90,000 plus $6,000 for shipping and $4,000 for installation. The machine’s useful life is four years and falls under the straight line depreciation (with no salvage value). Operating of this printing machine requires additional inventories of $32.000. On the other hand, $12.000 of the inventories will be on account and receivable of the project. Will be $5.000. MARC Ltd. forecasts that new machine 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
The Lavish Carpet Manufacturing Co. has decided acquire a new machine that has an economic life...
The Lavish Carpet Manufacturing Co. has decided acquire a new machine that has an economic life of 10 years, with no residual value. The machine can be purchased for $75,000, and the supplier is willing to advance $45,000 of the purchase price at 12 percent. The loan is to be repaid in equal instalments over 10 years. Lavish Carpet pays 40 percent corporate income tax and can claim 20 percent capital cost allowances on the purchased asset. It expects to...
cost cutting problem: a company is considering the purchase of a new machine. the machine has...
cost cutting problem: a company is considering the purchase of a new machine. the machine has a cost of $1,500,000. the company believes that revenues will remain at their current levels, however operating costs will be reduced by $380,000 per year. the machine is expected to operate for 10 years. it will be sold for its salvage value of $80,000 at year 5. the company’s current investment in operating net working capital is $150,000. if the company purchases the new...
21.14 Lease or Buy. Wolfson Corporation has decided to purchase a new machine that costs $2.8...
21.14 Lease or Buy. Wolfson Corporation has decided to purchase a new machine that costs $2.8 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $2.8 million. The interest rate per year is 9%. The repayment schedule is four yearly principal repayments of $700,000 and an interest charge of 9 percent on the outstanding balance...
Company A is considering the purchase of a new machine. The new machine is not expected...
Company A is considering the purchase of a new machine. The new machine is not expected to affect revenues, but pretax operating expenses will be reduced by $12,700 per year for 10 years. The old machine is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $61,500 and has been depreciated by the straight-line method. The old machine can be sold for $20,700 today The new machine will be depreciated by the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT