ABC Inc. must purchase a welding machine. The following is known about the machine and about possible cash flows. p=.40p=.30p=.30First cost$40,000 $40,000 $40,000 Annual savings2,0005,0008,000Annual costs12,0008,0006,000Actual salvage value4,0005,0006,500 The machine is expected to have a useful life of 8 years. The company has a MARR of 7%. Determine the NPW of the machine.

The machine has an 8-year lifespan.The MARR for the firm is 7%. Find out the machine's NPW.Initial costs (P/A, 7%,8) + SV (P/F, 7%, 8) A: -40,000- 10,000 (P/A, 7%, 8) + 4,000( P/F, 7%, 8)= 97382 1+ .07^8 -1/ .07 (1+ .07)^8 = 5.971 B: -40,000 – 3,000 (5.971) + 5,000 (.5820) = -55, 003 C: -40,000 + 2,000 (5.971)+ 6,500(.5820) = - 24,275 .4( - 97,382) + .3(-55,003) + .3(-24,275) =-62736.2This machine has a negative net present value, making it a poor investment.

Answered: p=.30 p=.30 First cost $40,000…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

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ABC Inc. must purchase a welding machine. The following is known about the machine and about possible cash flows.

	p=.40	p=.30	p=.30
First cost	$40,000	$40,000	$40,000
Annual savings	2,000	5,000	8,000
Annual costs	12,000	8,000	6,000
Actual salvage value	4,000	5,000	6,500

The machine is expected to have a useful life of 8 years. The company has a MARR of 7%. Determine the NPW of the machine.

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p=.30 p=.30 First cost $40,000 $40,000 $40,000 Annual savings 2,000 5,000 8,000 Annual costs 12,000 8,000 6,0