A company would like to purchase a machine for $160,000 with a life of 8 years. They estimate a POSITIVE salvage value to be 3% of the initial machine cost (CASH IN FLOW at EOY8). If other operating costs are estimated to be $15,000 per year. The interest rate the company uses to justify their investments is 9% per year compounded yearly. a. What is the capital recovery cost? b. What is the minimum amount of annual revenue ($? per year) that makes this investment an attractive option for the company?
A company would like to purchase a machine for $160,000 with a life of 8 years. They estimate a POSITIVE salvage value to be 3% of the initial machine cost (CASH IN FLOW at EOY8). If other operating costs are estimated to be $15,000 per year. The interest rate the company uses to justify their investments is 9% per year compounded yearly. a. What is the capital recovery cost? b. What is the minimum amount of annual revenue ($? per year) that makes this investment an attractive option for the company?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Do this by creating a table in Excel?
Transcribed Image Text:A company would like to purchase a machine for
$160,000 with a life of 8 years. They estimate a POSITIVE
salvage value to be 3% of the initial machine cost (CASH
IN FLOW at EOY8). If other operating costs are estimated
to be $15,000 per year. The interest rate the company uses
to justify their investments is 9% per year compounded
yearly.
a. What is the capital recovery cost?
b. What is the minimum amount of annual revenue ($? per
year) that makes this investment an attractive option for
the company?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education