Reference no: EM132970528

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 Materials 300.0

Maintenance 8.0

Lubricants and other Supplies 4.5

Electricity Supply 8.4

Ventilation 3.5

Distribution Costs for Products 104.6

Other costs, excluding depreciation of the machine 2.9

Problem 1: What is the forecast average investment in the machine over the 20 years of its useful life?