Question

QUESTION 3 VYS Inc will purchase a new machine that costs $30,000 and is expected to last 12 years with a salvage value of $3,000. Annual operating expenses for first year is $9,000 and increase by $200 each year thereafter. Annual income is expected to be $12,000 per year. If VYS'S MARR is 10%, determine the NFW of the machine purchase.

Answer 1

Machine Cost = 30,000

Life = 12 years

Salvage Value = 3,000

Annual Operating Expenses in the first year = 9,000

It increases by 200 each year thereafter

Annual Income = 12,000 per year

MARR = 10%

Determine NFW

Step – 1 – Convert the gradient annual operating cost into yearly uniform operating cost.

A = A1 + G (A/G, 10%, 12)

A = 9,000 + 200 (4.388402)

A = 9,000 + 877.68 = 9,877.68

Step – 2 – Calculate net annual income

Net Annual Income = 12,000 – 9,877.68

Net Annual Income = 2,122.32

Step – 3 – Calculate NFW

NFW = -30,000 (F/P, 10%, 12) + 2,122.32 (F/A, 10%, 12) + 3,000

NFW = -30,000 (3.138428) + 2,122.32 (21.384283) + 3,000

NFW = -45,768.5485

Net Future Worth or NFW = -45,768.5485