1. You have been tasked with overhauling the widget assembly line in your company's factory. The overhaul will involve an initial cost of $230,000 and will have a total lifespan of 13 years. Beginning in year 3, when the overhaul is completed, you expect a decrease in operating costs of $38,000 annually. This will last for 9 years, ending in year 11. For the final 2 years (though year 13), the savings will be only $11,000 per year. What is the NPV of this cash flow at a corporate cost of money of 4%?
1. You have been tasked with overhauling the widget assembly line in your company's factory. The overhaul will involve an initial cost of $230,000 and will have a total lifespan of 13 years. Beginning in year 3, when the overhaul is completed, you expect a decrease in operating costs of $38,000 annually. This will last for 9 years, ending in year 11. For the final 2 years (though year 13), the savings will be only $11,000 per year. What is the NPV of this cash flow at a corporate cost of money of 4%?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![1. You have been tasked with overhauling the widget assembly line in your company's factory.
The overhaul will involve an initial cost of $230,000 and will have a total lifespan of 13 years.
Beginning in year 3, when the overhaul is completed, you expect a decrease in operating costs of
$38,000 annually. This will last for 9 years, ending in year 11. For the final 2 years (though
year 13), the savings will be only $11,000 per year. What is the NPV of this cash flow at a
corporate cost of money of 4%?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe61b4a47-3d29-465d-8836-fdfd059d24fe%2F6dadc36e-326c-4a58-a59a-44c34517d7af%2Fqy7uk7_processed.png&w=3840&q=75)
Transcribed Image Text:1. You have been tasked with overhauling the widget assembly line in your company's factory.
The overhaul will involve an initial cost of $230,000 and will have a total lifespan of 13 years.
Beginning in year 3, when the overhaul is completed, you expect a decrease in operating costs of
$38,000 annually. This will last for 9 years, ending in year 11. For the final 2 years (though
year 13), the savings will be only $11,000 per year. What is the NPV of this cash flow at a
corporate cost of money of 4%?
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