Larson Manufacturing is considering purchasing a new injection-moulding machine

Question

Larson Manufacturing is considering purchasing a new injection-moulding machine to expand its production capacity. There is a one-time cost of $34,300 to perform site preparation for the machine, which will occur immediately increase its annual revenue by $58,000. The machine will be used for 4 years and can be salvaged for $26,000 at the end of 4 years. If the company's MARR is 14.2%, what is the maximumamount that should be spent on purchasing the new injection-molding machine?" With the new machine installed turing expects to

Explanation / Answer

The maximum amount you can spend on new machine is its present worth

PW = -34300 + 58000(P/A, 14.2%, 4) + 26000(P/F, 14.2%, 4)

= -34300 + 58000*2.90181 + 26000*0.58794

= 149291

This is the maximum amount that can be used to buy the machine.

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