Production engineers of a manufacturing firm have proposed a new equipment to increase productivity of a manual gas-cutting operation. The initial investment (first cost) is $5,00,000 and the equipment will have a salvage value of $1,00,000 at the end of its expected life of 5 years. Increased productivity will yield an annual revenue of $2,00,000 per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the new equipment economically justified?

Production engineers of a manufacturing firm have proposed a new equipment to increase productivity of a manual gas-cutting operation. The initial investment (first cost) is $5,00,000 and the equipment will have a salvage value of $1,00,000 at the end of its expected life of 5 years. Increased productivity will yield an annual revenue of $2,00,000 per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the new equipment economically justified?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Production engineers of a manufacturing firm have proposed a new equipment to increase
productivity of a manual gas-cutting operation. The initial investment (first cost) is
$5,00,000 and the equipment will have a salvage value of $1,00,000 at the end of its
expected life of 5 years. Increased productivity will yield an annual revenue of $2,00,000
per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the
new equipment economically justified?

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