Determine the sensitivity of rate of return to useful life

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Reference no: EM13234207

A newspaper is considering buying locked vending machines to replace open newspaper racks in the downtown area. The vending machines cost $45 each. It is expected that the annual revenue from selling the same quantity of newspapers will increase $12 per vending machine. The useful life of the vending machine is unknown.

a) To determine the sensitivity of rate of return to useful life, prepare a graph for rate of return versus useful life for lives up to 8 years.

b) If the newspaper requires a 12% rate of return, what minimum useful life must it obtain from the vending machines?

c) What would be rate of return if the vending machines were to last indefinitely?

Reference no: EM13234207

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