Machine C costs $205,000, has a life of 10 years and will return a benefit of $7
ID: 1106216 • Letter: M
Question
Machine C costs $205,000, has a life of 10 years and will return a benefit of $75,500 in the first year, and increasing by 8% for the life of the machine. The first year costs for Machine C is $45,000, increasing by an inflation rate of 3% per year. The salvage value at the end of life of the machine is 15% of the original investment cost. What is the NPW for the machine at an MARR of 14%?
Around $28,400
Around $35,600
Around $48,300
Around $68,000
Around $28,400
Around $35,600
Around $48,300
Around $68,000
Explanation / Answer
Option (4).
Salvage value ($) = Initial cost x 15% = 205,000 x 15% = 30,750, which will be added to Benefit in year 10.
Annual net benefit (NAB) = Annual benefit - Annual cost
NPW of the Annual net benefit is computed as follows.
Year Benefit ($) Cost ($) NAB ($) PV Factor @14% Discounted NAB ($) (A) (B) (C) = (A) - (B) (D) (C) x (D) 0 2,05,000 -2,05,000 1.0000 -2,05,000 1 75,500 45,000 30,500 0.8772 26,754 2 81,540 46,350 35,190 0.7695 27,078 3 88,063 47,741 40,323 0.6750 27,217 4 95,108 49,173 45,936 0.5921 27,198 5 1,02,717 50,648 52,069 0.5194 27,043 6 1,10,934 52,167 58,767 0.4556 26,773 7 1,19,809 53,732 66,077 0.3996 26,407 8 1,29,394 55,344 74,049 0.3506 25,959 9 1,39,745 57,005 82,741 0.3075 25,443 10 1,81,675 58,715 1,22,960 0.2697 33,168 NPW of NAB ($) = 68,039Related Questions
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