You have been asked to make a recommendation about whether to spend $115,000 on a new Laser cutting machine for your company. Annual net revenues in Current/Actual dollars are estimated to be $25,000 in the first year, increasing by $460 per year for each year thereafter. Salvage value is estimated to be $6,000 in Real dollars in 18 years. Taking into account the following information: • Your company uses a Real-MARR of 8% for all its projects. Inflation is expected to average 1.2% per year for at least the next 18 years. There will be an equipment overhaul cost in Real dollars of $2,000 in BOTH year 6 and year 8.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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You have been asked to make a recommendation about whether to
spend $115,000 on a new Laser cutting machine for your company.
Annual net revenues in Current/Actual dollars are estimated to be
$25,000 in the first year, increasing by $460 per year for each year
thereafter. Salvage value is estimated to be $6,000 in Real dollars in 18
years. Taking into account the following information:
Your company uses a Real-MARR of 8% for all its projects.
• Inflation is expected to average 1.2% per year for at least the
next 18 years.
• There will be an equipment overhaul cost in Real dollars of
$2,000 in BOTH year 6 and year 8.
Transcribed Image Text:You have been asked to make a recommendation about whether to spend $115,000 on a new Laser cutting machine for your company. Annual net revenues in Current/Actual dollars are estimated to be $25,000 in the first year, increasing by $460 per year for each year thereafter. Salvage value is estimated to be $6,000 in Real dollars in 18 years. Taking into account the following information: Your company uses a Real-MARR of 8% for all its projects. • Inflation is expected to average 1.2% per year for at least the next 18 years. • There will be an equipment overhaul cost in Real dollars of $2,000 in BOTH year 6 and year 8.
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