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A new machine can be purchased today for $450,000. The annual revenue from the machine is calculated to be $72,000, and the equipment will last 10 years. Expect the maintenance and operat- ing costs to be $4500 a year and to increase $750 per year. The salvage value of the machine will be $35,000. What is the rate of return for this machine?

A new machine can be purchased today for $450,000. The annual revenue from the machine is calculated to be $72,000, and the equipment will last 10 years. Expect the maintenance and operat- ing costs to be $4500 a year and to increase $750 per year. The salvage value of the machine will be $35,000. What is the rate of return for this machine?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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can anyone please help me I was trying to solve this question but I'm really lost

A new machine can be purchased today for $450,000. The annual revenue from the machine is calculated to be $72,000, and the equipment will last 10 years. Expect the maintenance and operat- ing costs to be $4500 a year and to increase $750 per year. The salvage value of the machine will be $35,000. What is the rate of return for this machine?
Transcribed Image Text:A new machine can be purchased today for $450,000. The annual revenue from the machine is calculated to be $72,000, and the equipment will last 10 years. Expect the maintenance and operat- ing costs to be $4500 a year and to increase $750 per year. The salvage value of the machine will be $35,000. What is the rate of return for this machine?
Expert Solution
Step 1.

Net cash flow (NCF) is computed as follows.

NCF, year 0 = - 450,000 (purchase price)

NCF, years 1-9 = Annual revenue - Annual maintenance (O&M) cost

NCF, year 10 = Annual revenue - Annual O&M cost + Salvage value

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