A new machine can be purchased for $80,000. Its expected useful life is 5 years, at which time its market value will be $6,000. Annual revenues less expenses due to the new machine will be $20,000 per year over the five-year period. Assume a MAŘR of 10% to determine if this is a good investment by using a) the PW method b) the FW method c) the AW method

A new machine can be purchased for $80,000. Its expected useful life is 5 years, at which time its market value will be $6,000. Annual revenues less expenses due to the new machine will be $20,000 per year over the five-year period. Assume a MAŘR of 10% to determine if this is a good investment by using a) the PW method b) the FW method c) the AW method

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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Question

Economics
A new machine can be purchased for $80,000. Its
expected useful life is 5 years, at which time its
market value will be $6,000. Annual revenues less
expenses due to the new machine will be $20,000
per year over the five-year period. Assume a
MAŘR of 10% to determine if this is a good
investment by using
a) the PW method
b) the FW method
c) the AW method
d) The IRR method
e) The ERR method

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