A compnay is considering buying a new piece of machinery. The inital cost is $80

Question

A compnay is considering buying a new piece of machinery. The inital cost is $80,000; the end-of-useful-life salvage value is $20,000; annual operating costs are $18,000; and the useful life is 20 years. the machine will produce an annual savings in material of $25,600. What is the rate of return if the machine is installed? A compnay is considering buying a new piece of machinery. The inital cost is $80,000; the end-of-useful-life salvage value is $20,000; annual operating costs are $18,000; and the useful life is 20 years. the machine will produce an annual savings in material of $25,600. What is the rate of return if the machine is installed?

Explanation / Answer

80000 = 20000/ ((1+i)^20) + 7600/(1+i) + 7600/((1+i)^2) + .... + 7600/((1+i)^20)

i = .08 = 8%

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