Question

Your firm is thinking about investing $200,000 in the overhaul of a manufacturing cell in a lean environment. Revenues are expected to be $36,000 in year one and then increasing by $12,000 more each year thereafter. Relevant expenses will be $10,000 in year one and will increase by $5,000 per year until the end of the cell's five-year life. Salvage recovery at the end of year five is estimated to be $9,000. What is the annual equivalent worth of the manufacturing cell if the MARR is 10% per year? 5 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. The annual equivalent worth of the manufacturing cell is $ (Round to the nearest dollar.)

Answer 1

Initial investment = 200000

Revenue in year 1 = 36000 which increases by 12000

Expenses in year 1 = 10000 which increases by 5000

n = 5 years

i = 10%

Salvage = 9000

Annual equivalent worth

= [-200000+36000*(P/A,10%,5)+12000*(P/G,10%,5)-10000*(P/A,10%,5)-5000*(P/G,10%,5)+9000*(P/F,10%,5)] *(A/P,10%,5)

= [-200000+36000*3.790787+12000*6.861802-10000*3.790787-5000*6.861802+9000*0.620921]*0.263797

= [-47818.6]*0.263797

= -12614