A machine, costing $30,000 to buy and $2.500 per year to operate, will savemainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the end of seven years is $4,500.(a) If a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?(b) If the service life is just five years, instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?(c) If the annual operating cost increases 10%, say, from $2,500 to $2,750, what will happen to the answer to (a)?
A machine, costing $30,000 to buy and $2.500 per year to operate, will savemainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the end of seven years is $4,500.(a) If a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?(b) If the service life is just five years, instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?(c) If the annual operating cost increases 10%, say, from $2,500 to $2,750, what will happen to the answer to (a)?
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
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A machine, costing $30,000 to buy and $2.500 per year to operate, will save
mainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the end of seven years is $4,500.
(a) If a 12% return on investment (
(b) If the service life is just five years, instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
(c) If the annual operating cost increases 10%, say, from $2,500 to $2,750, what will happen to the answer to (a)?
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