Casters & Company purchased a new robotic assembly line for $161574. Casters pai
ID: 2778817 • Letter: C
Question
Casters & Company purchased a new robotic assembly line for $161574. Casters paid 1/2 of the original cost in cash. The manufacturer has agreed to let Casters make payments for the rest of the cost. Casters will make yearly payments for 5 years to the manufacturer, who charges 3% interest compounded annually. The system is expected to last 12 years and have a salvage value of $20462 at that time. Over the 12 year period, Casters will have to pay a yearly maintenance fee of $3767 per year that is expected to increase by $287 per year. Casters uses a MARR of 6% to evaluate investments. What is the net present worth of the robotic assembly line?
Explanation / Answer
K = N
Total payment to the manufacturer based on the 5 year loan = [(Annuity payment)/(1 + Interest rate)^k] k=1
K = 5
161574/2 = [(Annual payment)/(1 +3/100)^k]
k=1
Annual payment = $ 17640.21
MARR= 6.000% Year 0 1 2 3 4 5 6 7 8 9 10 11 12 Initial payment =original cost/2 -80787 5 years yearly payment -17640.2 -17640.2 -17640.2 -17640.2 -17640.2 Maintenance cost =-(3767 +287*(year-1)) -3767 -4054 -4341 -4628 -4915 -5202 -5489 -5776 -6063 -6350 -6637 -6924 Salvage value 20462 Total Cash flow stream -80787 -21407.2 -21694.2 -21981.2 -22268.2 -22555.2 -5202 -5489 -5776 -6063 -6350 -6637 13538 Discounting factor 1 1.06 1.1236 1.191016 1.262477 1.338226 1.418519 1.50363 1.593848 1.689479 1.790848 1.898299 2.012196 Discounted cash flows project -80787 -20195.5 -19307.8 -18455.8 -17638.5 -16854.6 -3667.2 -3650.5 -3623.93 -3588.68 -3545.81 -3496.29 6727.971 NPV = Sum of discounted cash flows NPV = -180557 Where Discounting factor = (1 + MARR)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factorRelated Questions
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