Please clear writing if so 53 A machine costs 250000 to purc

5-3 A machine costs $250,000 to purchase and will provide $60,000 a year in benefits. The company plans to use the machine for 12 years and then will sell the machine for scrap, receiving $15,000. The company interest rate is 10%. Should the machine be purchased?

Solution

Annual Benefits 60000 Salvage value 15000 Stated rate of interest 10% Annuity present value factor for 12yrs 6.8137 Present value factor at 12th year 0.3186 Present value of annual benefits 408822 Add: Present value of Salvage 4779 Total Present value of Inflows 413601 Less: Initial Investment 250000 Net present value 163601 As NPV is positive, The Project must be accepted