An engineer proposes a capital purchase for a DOW machine. The year zero purchase costs are estimated as $40K with an additional (one-time) investment of $10KK at the end of the fifth year ofoperarion Annual operating and maintcnance (O&M) costs are estimated as $2K per year. Installation of the new machine is expected to provide revenue of S4K the Tirst year, $6K for year 2, $8K for year 3, SIOK for year 4, and S12K for vear 5 and all remaining years in service. The machine is expected to have a salvage value of $8K ar the end of year 10. The company currently uses a MARR of 10% for project assessment.
An engineer proposes a capital purchase for a DOW machine. The year zero purchase costs are estimated as $40K with an additional (one-time) investment of $10KK at the end of the fifth year ofoperarion Annual operating and maintcnance (O&M) costs are estimated as $2K per year. Installation of the new machine is expected to provide revenue of S4K the Tirst year, $6K for year 2, $8K for year 3, SIOK for year 4, and S12K for vear 5 and all remaining years in service. The machine is expected to have a salvage value of $8K ar the end of year 10. The company currently uses a MARR of 10% for project assessment.
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
Solve c)
What is the payback period (PB) for this project?
Transcribed Image Text:. An engineer proposes a capital purchase for a now machnc. The year zero purchase costs are estimasod
as S40K with an additional (ooe-time) invertmtof 510K cend of the finhyear of operica
Annual operating and mainlenance (O&M)costs
machine is expected to pravide revenue of SAKtbe finst year. $6K for year 2, S8K for vear1 SIOK for
year 4, and S12K for year 5 and all remaiing.years
salvage value of $8K ar the erd of year 10. The company currently uses a MARR of 10% for project
2rmsted as $2K per year Installation of the ne
service The machine a expecced to have a
assessnen.
Show your work (as appropriate) and clearlyy indicate cach answer.
What is the appropriate life-span planning borizon) for this peoject? →D
Prepare a cash low diagram for the projoct.
What is the Payback Period (PB) for this proyect?
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