Question

Engineering Economics

4 The capital investment for a new machine is $900,000. The current estimated annual expense is $100,000.This expense is estimated to increase at the rate of 6 per year. Assume that f (inflation rate) -5, N-5 years, Mv at the end of year seven is 10% of the capital investment, and the after-tax MARR (inflation-free) is 10 per year. (259) .1 What uniform annual revenue would the machine need to generate to break even? 4.2 If the machine is depreciated by the stright 1ine method and the effective tax rate is 408, what uniform annual revenue would the machine need to generate to break even

Answer 1

4.1)

(all figures in $)

Initial capital investment	900000
Value at end of 7 years	90000
Thus cost per year	115714.29
Annual expenses
year 1	100000
year 2	106000
year 3	112360
year 4	119101.6
year 5	126247.7
Net cost for 5 years	1142280.7
Cost per year	228456.14

Thus uniform revenue required is $228456.14 per year

4.2)

If tax rate is 40%,

then new revenue per year = 228456.14 *(100/60) = $380760.23