The semi-automatic machine investment

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Reference no: EM131515292

A new semi-automatic machine costs $ 80,000 and is expected to generate revenues of $ 40,000 per year for 6 years. It will cost $ 25,000 per year to operate the machine. At the end of 6 years, the machine will have a salvage value of $ 10,000. Evaluate the investment in this machine using all four methods (payback period, present worth, uniform annual cost (UAC), and rate of return). Neglect the salvage value for the payback period method and the rate of return methods. Suppose, a completely automated machine is available for $ 140,000. The annual operating cost is $ 10,000 and the service life is expected to be 7 years. The salvage value of this equipment at the end of this period is $ 25,000. Revenues from this alternative too are $ 50,000 per year. Use the UAC method to compare this investment alternative with the semi-automatic machine investment. Use a rate of return of 15 % where necessary.

Reference no: EM131515292

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