During an executive meeting, managers are reviewing potential projects for the incoming year. A manager from one department proposes for one project that they buy new equipment that has an investment value of $50,000. He further explains that there would be maintenance costs for $5000 per annum at year 1 that would however rise by $1000 each year for four years but would become fixed for the next 5 years. This proposal would give the company annual savings of $20,000 per year. If this machine has a market value of $35,000 after a decade and the company's MARR is 10% annual, what is present worth of this proposal?
During an executive meeting, managers are reviewing potential projects for the incoming year. A manager from one department proposes for one project that they buy new equipment that has an investment value of $50,000. He further explains that there would be maintenance costs for $5000 per annum at year 1 that would however rise by $1000 each year for four years but would become fixed for the next 5 years. This proposal would give the company annual savings of $20,000 per year. If this machine has a market value of $35,000 after a decade and the company's MARR is 10% annual, what is present worth of this proposal?
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 21BEA
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During an executive meeting, managers are reviewing potential projects for the incoming year.
A manager from one department proposes for one project that they buy new equipment that has an investment value of $50,000.
He further explains that there would be maintenance costs for $5000 per annum at year 1 that would however rise by $1000 each year for four years but would become fixed for the next 5 years.
This proposal would give the company annual savings of $20,000 per year. If this machine has a market value of $35,000 after a decade and the company's MARR is 10% annual, what is present worth of this proposal?
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