You are considering purchasing a CNC machine which costs $190,000. This machine

Question

You are considering purchasing a CNC machine which costs $190,000. This machine will have an estimated service life of 10 years with a net after-tax salvage value of $19,000. Its annual after-tax operating and maintenance costs are estimated to be $42,000. To expect an 17% rate of return on investment, what would be the required minimum annual after-tax revenues? Click the icon to view the interest facto for discrete compounding when i: 17% per year. The required minimum annual after-tax revenues would be sthousand. (Round to one decimal place)

Explanation / Answer

Assuming Annual revenue to be X

Thus 4.6586X-195661.4+3952.71 = 190000

=4.6586X - 191709 = 190000

4.6586X = 381709

X = 81936.42$

Thus minimum revenue should be 81936.42$

Year 0 1 to 10 10 Cost of machine -190000 Revenue X Operating expense -42000 Salvage value 19000 Total cash flow -190000 X-42000 19000 PVIF @ 17% 1 0.208037383 PVIFA(17%,1) 4.6586 Present value -190000 4.6586X-195661.4 3952.710282

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