Question

Larson Manufacturing is considering purchasing a new​ injection-molding machine for ​$270,000 to expand its production capacity. It will cost an additional ​$20,000 to do the site preparation. With the new​ injection-molding machine​ installed, Larson Manufacturing expects to increase its revenue by ​$87,000 per year. The machine will be used for six ​years, with an expected salvage value of ​$75,000. At an interest rate of 10​%, would the purchase of the​ injection-molding machine be​ justified?

The present worth of the project is ​$_____.

​ (Round to the nearest​ dollar.)

Answer 1

Ans: The present worth of the project is ​$128248 .

The purchase of the​ injection-molding machine would be​ justified due to positive present worth value of the project

Explanation:

Initial cost = $270,000

Additional cost ​$20,000

Annual revenue = $87,000

Salvage value = $75,000

n= 6 years

i = 10%

Total initial cost = $270,000 + ​$20,000 = $290,000

PW = - $290,000 + $87,000( P / A ,10%, 6 ) + $75,000 ( P / F , 10%, 6 )

= - $290,000 + $87,000( 4.3553 ) + $75,000 ( 0.5645)

= - $290,000 + $378911.1 +$42337.5

= - $290,000 + $418248.6

= $128248.6