A company would like to purchase a machine for $160,000 with a life of 8 years. They estimate a POSITIVE salvage value to be 3% of the initial machine cost (CASH IN FLOW at EOY8). If other operating costs are estimated to be $15,000 per year. The interest rate the company uses to justify their investments is 9% per year compounded yearly. a. What is the capital recovery cost? b. What is the minimum amount of annual revenue ($? per year) that makes this investment an attractive option for the company?
A company would like to purchase a machine for $160,000 with a life of 8 years. They estimate a POSITIVE salvage value to be 3% of the initial machine cost (CASH IN FLOW at EOY8). If other operating costs are estimated to be $15,000 per year. The interest rate the company uses to justify their investments is 9% per year compounded yearly. a. What is the capital recovery cost? b. What is the minimum amount of annual revenue ($? per year) that makes this investment an attractive option for the company?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...
Related questions
Question
Do this by creating a table in Excel?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning