The Rosco company is purchasing a new machine that will increase revenue for 8 years. The purchase price of the machine is $245,900 and will require working capital of $55,000. This new machine will require a major service in year 3 and year 6 of $37,500. The increase in revenue will be: Years 1, Year 2, and Year 3 will have an annual increase in revenue of $98,700. Year 4 - $118,400, Year 5 - $125,300, Year 6 - $96,100, Year 7 - $82,300 and Year 8 - 74,900. At the end of year 8, the company will sell the machine for scrap for $25,000. Calculate the net present value of the new machine using a 15% rate of return. Show your work.
The Rosco company is purchasing a new machine that will increase revenue for 8 years. The purchase price of the machine is $245,900 and will require working capital of $55,000. This new machine will require a major service in year 3 and year 6 of $37,500. The increase in revenue will be: Years 1, Year 2, and Year 3 will have an annual increase in revenue of $98,700. Year 4 - $118,400, Year 5 - $125,300, Year 6 - $96,100, Year 7 - $82,300 and Year 8 - 74,900. At the end of year 8, the company will sell the machine for scrap for $25,000. Calculate the net present value of the new machine using a 15% rate of return. Show your work.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Rosco company is purchasing a
new machine that will increase revenue
for 8 years. The purchase price of the
machine is $245,900 and will require
working capital of $55,000.
This new machine will require a major
service in year 3 and year 6 of $37,500.
The increase in revenue will be:
Years 1, Year 2, and Year 3 will have an
annual increase in revenue of $98,700.
Year 4 - $118,400, Year 5 - $125,300,
Year 6 - $96,100, Year 7 - $82,300 and
Year 8 - 74,900.
At the end of year 8, the company will
sell the machine for scrap for $25,000.
Calculate the net present value of
the new machine using a 15% rate
of return.
Show your work.
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