A full answer will recieve full credit. Thank you for the help. A proposed inves

Question

A full answer will recieve full credit.  Thank you for the help.

A proposed investment consists of constructing a building, purchasing production machinery, and operating for 20 years. The expected life of the building is 20 years; its first cost is dollar 250,000 with a salvage value of dollar 50,000. Since the maximum life of the machinery is 12 years, it will be necessary to renew the machinery once during the 20 years. The first cost of the machinery is dollar 132,000, and its salvage value is dollar 132.000/(age, years). The annual income less the operating expense is expected to be dollar 50,000. Annual interest is 6 percent compounded annually. When is the most favorable time to replace the machinery? Compute the present worth of the profit if the machinery is replaced at the time indicated by part (a).

Explanation / Answer

a. The most favourable time to repalce the machinery is 12 years as it is the maximum time after which the expenses will increase...

b. Present worth of profit=-132000+50000/(1+0.06)+50000/(1+0.06)^2+50000/(1+0.06)^3........+(50000+132000)/(1+0.06)^12

=

352792.1530

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