1. Calculate the loan payment amount. 2. Calculate the present worth of the investment. 3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not?
Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimaed to be $20,000 per year. If the system is purchased, additional revenues will be $40,000 per year. Water Cutter Co. must borrow half of the purchases price. The bank as agreed to three equal annual payments, with the first payment due at the end of year 1. The loan interest rate i 16% compounded annually. Water Cutter Co's MARR is 15% compounded annually.
1. Calculate the loan payment amount.
2. Calculate the present worth of the investment.
3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not?
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