A machine, costing $30,000 to buy and $2.500 per year to operate. will save mainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the e nd of seven years is $4,500.(a) 1f a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?(b) U the service life is just five years. instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?(c) If the annual operating cost increases 10%, say. from $2,500 to $2,750, what will happen to the answer to (a)?
A machine, costing $30,000 to buy and $2.500 per year to operate. will save mainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the e nd of seven years is $4,500.(a) 1f a 12% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?(b) U the service life is just five years. instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?(c) If the annual operating cost increases 10%, say. from $2,500 to $2,750, what will happen to the answer to (a)?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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A machine, costing $30,000 to buy and $2.500 per year to operate. will save mainly labor expenses in packaging over seven years. The anticipated salvage value of the machine at the e nd of seven years is $4,500.
(a) 1f a 12% return on investment (
(b) U the service life is just five years. instead of seven years, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
(c) If the annual operating cost increases 10%, say. from $2,500 to $2,750, what will happen to the answer to (a)?
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