"Your company is purchasing a machine that costs $34,000 now and can be sold for $15,000 in year 6 at the end of the...
"Your company is purchasing a machine that costs $34,000 now and can be sold for $15,000 in year 6 at the end of the machine's life. The machine costs $15,000 each year to operate and the raw materials cost $14,000 each year. The machine produces 600 pieces each year. Using an annual interest rate of 6%, what is the cost per piece produced? HINT: Calculate the Annual Equivalent Cost first."
Homework Answers
| Annual cost of producing: | ||||
| Raw material cost | 14000 | |||
| Annual operating cost | 15000 | |||
| Total Annual ccosst | 29000 | |||
| Multiply: Annuity PVF at 6% for 6yrs | 4.91732 | |||
| Present value of annual cost | 142602.3 | |||
| Initial investment | 34000 | |||
| Total PV of outflows | 176602.3 | |||
| Less: PV of salvage (15000*0.704961) | 10574.42 | |||
| Net cost | 166027.9 | |||
| Divide: Annuity pVF | 4.91732 | |||
| Annual equivalent cost | 33763.89 | |||
| Divide: Annual production | 600 | |||
| Unit cost | 56.27 | |||
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