A company plans to buy $ 11300 worth of metering devices. The machine, which has an economic life of 12 years and will not be used afterwards, should be put into maintenance at the end of a period of 2 years in order to be able to make good measurements. First maintenance cost $ 500 And each maintenance cost is twice the previous maintenance cost. There is no scrap value at the end of the machine's economic life. The company gains varying amounts every year due to the purchase of this machine. For the first three years, the earnings are $ 1000 each year. Annual earnings for each subsequent 3-year period increase by $ 1000 over the previous 3-year period. a) Draw the cash flow diagram and find the IIR value. b) If you managed the company, would you buy this machine when the MARR was 5% and explain why.
A company plans to buy $ 11300 worth of metering devices. The machine, which has an economic life of 12 years and will not be used afterwards, should be put into maintenance at the end of a period of 2 years in order to be able to make good measurements. First maintenance cost $ 500 And each maintenance cost is twice the previous maintenance cost. There is no scrap value at the end of the machine's economic life. The company gains varying amounts every year due to the purchase of this machine. For the first three years, the earnings are $ 1000 each year. Annual earnings for each subsequent 3-year period increase by $ 1000 over the previous 3-year period. a) Draw the cash flow diagram and find the IIR value. b) If you managed the company, would you buy this machine when the MARR was 5% and explain why.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 18E
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- A company plans to buy $ 11300 worth of metering devices.
The machine, which has an economic life of 12 years and will not be used afterwards, should be put into maintenance at the end of a period of 2 years in order to be able to make good measurements.
First maintenance cost $ 500
And each maintenance cost is twice the previous maintenance cost.
There is no scrap value at the end of the machine's economic life.
The company gains varying amounts every year due to the purchase of this machine.
For the first three years, the earnings are $ 1000 each year.
Annual earnings for each subsequent 3-year period increase by $ 1000 over the previous 3-year period.
- a) Draw the cash flow diagram and find the IIR value.
- b) If you managed the company, would you buy this machine when the MARR was 5% and explain why.
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