Purchase of diesel power shovel to improve its productivity

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Reference no: EM131089246

The ABC Construction Company is considering the purchase of a diesel power shovel to improve its productivity. The company finances the purchase by borrowing from a local bank with no rite with the compounded interests (annual nominal interest The hank compounds the financial charges semi-annually. The shovel, which to produce a benefit of $50,000 in the first year, and $4,000 less in each succeeding year for a total of five years (i.e., benefit of $46,000 in the second year. $42,000 in the year. continuing to $34,000 in the fifth year). The annual maintenance and operation cost of the equipment is $15,000 over 5 years. The company will sell the equipment with the expected resale price of $5,000 at the end of Year 5. Draw cash flow diagrams and determine whether the purchase is worthwhile at the MARR of 12%.

Reference no: EM131089246

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