QUESTION 6 A piece of machinery has an initial cost of 70000

QUESTION 6 A piece of machinery has an initial cost of $70,000, M&O; costs of $2,000 per year, revenue of $12,000 per year, and an indefinite life. If MARR-896, the machine will pay for itself in approximately how many years? a, 9 years b. 11 years CNone of these numerical values. d. 8 years e. 10 years

Solution

Option b,

=10+(2899.19/4288.83) = 10.67 years which is rounded to 11 years

Year

Cost

Discount factor

Discounted cashflow

Cumulative

0

-70000

1.00

-70000.00

1

10000

0.93

9259.26

-60740.74

2

10000

0.86

8573.39

-52167.35

3

10000

0.79

7938.32

-44229.03

4

10000

0.74

7350.30

-36878.73

5

10000

0.68

6805.83

-30072.90

6

10000

0.63

6301.70

-23771.20

7

10000

0.58

5834.90

-17936.30

8

10000

0.54

5402.69

-12533.61

9

10000

0.50

5002.49

-7531.12

10

10000

0.46

4631.93

-2899.19

11

10000

0.43

4288.83

1389.64

Year	Cost	Discount factor	Discounted cashflow	Cumulative
0	-70000	1.00	-70000.00
1	10000	0.93	9259.26	-60740.74
2	10000	0.86	8573.39	-52167.35
3	10000	0.79	7938.32	-44229.03
4	10000	0.74	7350.30	-36878.73
5	10000	0.68	6805.83	-30072.90
6	10000	0.63	6301.70	-23771.20
7	10000	0.58	5834.90	-17936.30
8	10000	0.54	5402.69	-12533.61
9	10000	0.50	5002.49	-7531.12
10	10000	0.46	4631.93	-2899.19
11	10000	0.43	4288.83	1389.64