3. Rate of return analysis (new machine) (5 points) Suppose, the A-V Engineering

Question

3. Rate of return analysis (new machine) (5 points) Suppose, the A-V Engineering Fabrication plans to invest to buy the new machine with an estimate of $90,000. This new will enable more production which estimates an average earning of $50,000/year. Salvage value of the machine after 10 years is expected to be $10,000. However, running the new machine for extra time will incur additional operating cost of $15,000/year. Assume a fixed 15% interest rate. How many years (Find n, years ?) would it take to get the return on the new machine

Explanation / Answer

Cost of the Machine - Salvage Value = $ 90000 - $ 10000 = $ 80000

Depreciation per year = $ 80000/ 10 = $ 8000 per year

Interest on Machine Cost = $ 90000*15% = $ 13500 per year

Extra Earnings = $ 80000- 13500- 8000 = $ 58500

Years taken to get the return on New Machine = $ 80000/ $ 58500 = 1.37 years

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.