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An engineer is considering the purchase of a copy machine for his/her consulting office. The copy machine will cost $2,000 and have a resale value of $400 at the end of its 5-year life. Having the machine in the office will reduce copy costs by $1,000 a year. Copy machine maintenance will be $500 for the first year and will increase by $100 each year. Does the machine have any future worth if the interest rate is 6%?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019
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Related questions

Engineering economics, show me step by steps

Two machines are being considered for the same 12-year task. The purchase will be made just at the start of the year 2016 (year 0-1).

This year, Machine A costs $15,000 new and is estimated to last 6 years. At the end of its life, it will have a trade-in value of 20% of its purchase price. The replacement cost of Machine A will increase by 4 percent per year (compounded annually) from its price in the year 2006. The trade-in value will be 20% of the purchase price. It will initially cost $3200 per year to operate and maintain Machine A. The o&m cost for machine A will also increase by 4%/year.

Machine B costs $30,000 new, is estimated to last 12 years, and will have a trade-in value of 25% of its purchase price. It will initially cost $1500 per year to operate and maintain Machine B. The o&m cost for machine B will increase by 4%/year.

Using an interest rate of 6 percent, compounded annually, compare the two machines, and offer a recommendation. State the basis for your comparison. Draw the cash-flow diagram for each alternative.

Mars Inc. is considering the purchase of a new machine that will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS accelerated method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000. The firm expects to be able to reduce net operating working capital by $15,000 when the machine is installed, but required net operating working capital will return to its original level when the machine is sold after 5 years. Mars’ marginal tax rate is 40%, and it uses a 12% WACC to evaluate projects of this nature. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. If the machine costs $60,000,

What is the tax on salvage value?

1.

A research engineer invests $5,000 at the end of every year for a 32-year career. If this teacher wants to have $1,524,240 in savings at retirement, what interest rate must the investment earn?

2.

Consider the following two mutually exclusive alternatives (do not consider the “Do Nothing” alternative). Each alternative has a 10-year useful life and no salvage value. If the MARR is 12%, which alternative should be selected? Answer in terms of incremental rate of return analysis

Cash Flow A B B – A

Initial cost (–$6,000) (–$9,000) (–$3,000)

EUAB $1,000 $1,500 $ 500

3.

An engineer has a fluctuating future budget for the maintenance of a particular machine. During each of the first 5 years, $1000 per year will be budgeted. During the second 5 years, the annual budget will be $1500 per year. In addition, $3500 will be budgeted for an overhaul of the machine at the end of the fourth year, and again at the end of the eighth year. What uniform annual expenditure (cost) would be equivalent, if interest is 9% per year?

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