A company is considering to purchase a food processing equipment. Table 2 shows

Question

A company is considering to purchase a food processing equipment. Table 2 shows detailed information associated with the purchase of the machine. At MARR=4%, determine the numbe of tons of food that must be processed annually to justify purchasing the machine. (30 points) Table 2 First cost $78,750 Annual income $25/ton of processed food Annual operating cost $5500 the first year, increasing $800 each year thereafter Annual property taxes 8% of the first cost Annual insurance 4% of the first cost, payable at the beginning of each year Salvage value 15% of the first cost + $1000 Useful life Useful life 10 years 10 years

Explanation / Answer

Year Initial cost+ AOC Property Salvage Cash flows PVF at 4% Present values Insurance Tax 0 -81900 0 0 -81900 1 -81900 1 -3150 -5500 -6300 -14950 0.961538 -14375 2 -3150 -6300 -6300 -15750 0.924556 -14561.8 3 -3150 -7100 -6300 -16550 0.888996 -14712.9 4 -3150 -7900 -6300 -17350 0.854804 -14830.9 5 -3150 -8700 -6300 -18150 0.821927 -14918 6 -3150 -9500 -6300 -18950 0.790315 -14976.5 7 -3150 -10300 -6300 -19750 0.759918 -15008.4 8 -3150 -11100 -6300 -20550 0.73069 -15015.7 9 -3150 -11900 -6300 -21350 0.702587 -15000.2 10 -3150 -12700 -6300 12812.5 -9337.5 0.675564 -6308.08 Present value of outflows -221607 Annuity factor for 10 years at 4% 8.1109 Equivavlent annual cash outflows -27322.1 Income per ton of food processed 25 Tones of Food processed 1093 tons

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