Reference no: EM132976788
You are provided with the following details of a proposed investment in a new machine:
The factory will cost £500,000 to acquire and install and will have a useful life of 20 years.
At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000.
Depreciation is to be charged on a straight-line basis.
If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year.
The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be
You are provided with the following details of a proposed investment in a new machine:
The factory will cost £500,000 to acquire and install and will have a useful life of 20 years.
At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000.
Depreciation is to be charged on a straight-line basis.
If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year.
The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be as follows:
Annual
Factory Costs Excluding Depreciation£000
Labour 300.0
Production Materials300.0
Maintenance8.0
Lubricants and other Supplies8.7
Electricity Supply8.8
Ventilation3.5
Distribution Costs for Products 104.6
Other costs, excluding depreciation of the machine2.9
Problem 1: What is the forecast average investment in the machine over the 20 years of its useful life?