Question

A machine costs $250,000 to purchase and will provide $60,000 a year in benefits. The company plans to use the machine for 12 years and then will sell the machine for scrap, receiving $15,000. The company interest rate is 10%. What is the net present worth to purchased?

Answer 1

Answer:

= $163, 601; The machine shouldbe purchased

Explanation:

The question is to determine the net present worth of the machine

The net present worth can be calculated using the formula s follows

= The initial cost of the machine + (the yearly benefits / 1.1∧each year for 11 years) + (yearly benefit + Scrap value / 1.1∧12)

This formula can be applied as follows to calculate the present worth of cash flow

$250000 + ($60000/1.1) + ($60000/$1.1^{2}$) + ($60000/$1.1^{3}$) + ($60000/$1.1^{4}$)+ ($60000/$1.1^{5}$)+ ($60000/$1.1^{6}$)+($60000/$1.1^{7}$)+($60000/$1.1^{8}$)+($60000/$1.1^{9}$)+($60000/$1.1^{10}$) + ($60000/$1.1^{11$) + ($60000  + 15,000/$1.1^{1\\2}$)

= $163, 601

Since the net Present worth is greater than 0, meaning it is not negative, then the machine can be purchased