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
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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?
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