01 Selling Machine Now Selling Machine Later Cost when purch

0.1 Selling Machine Now Selling Machine Later Cost (when purchased) cost (if sold now cost (if sold in 5 yrs) O&M; per year O&M; after 5 years 5000 3000 1000 500 2500 OM Costs Benefit Salvage Salvage PW Pw Assume we have a machine that we could sell now or continue using for 5 more years. If we sold the machine now we could get $3,000. If we sold it in 5 years we could get $1000 AND we would have $500/year in 0&M; costs. Assume-1096 9 What would minimum amount would we have to make annually in order to breakeven with selling the machine 0now? An approximate answer is acceptable. Hint: Use your text book tables to get the factors and solve that way OR use a trial and error approach in Excel to help solve

Solution

Salvage Value=3000 now

Salvage Value=1000 after 5 years

To breakeven we need

3000=(B-500)/1.1+(B-500)/1.1^2+(B-500)/1.1^3+(B-500)/1.1^4+(B-500)/1.1^5+(B-500)/1.1^6+1000/1.1^6

3000=(B-500)*4.36+1000/1.1^6

3000-564.47=(B-500)*4.36

2435.53/4.36+500=B

B=1058.61

Answer is $1058.61