A local brewery is considering canning their product. A canning machine will cost them $15,000, last...
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A local brewery is considering canning their product. A canning machine will cost them $15,000, last 3 years, and have a salvage value of $1,500. They anticipate increased monthly income of $425. Use a nominal annual discount rate of 10%. Should they buy the machine?
Homework Answers
Brewery should buy the machine if NPV > 0
monthly interest rate = 10%/12 = 0.83%
t = 36 months
salvage value = 1500 and pmt = 425
NPV = - 15000 + 425/(1 + 0.83%) + 425/(1 + 0.83%) + .... + 425/(1 + 0.83%)36 + 1500/(1 + 0.83%)36
NPV = - 716.12
Machine should not be bought. (NPV < 0)
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