Question

You are considering purchasing a CNC machine which costs $190,000. This machine will have an estimated service life of 13 years with a net after-tax salvage value of $19,000. Its annual after-tax operating and maintenance costs are estimated to be $40,000. To expect an 16% rate of return on investment, what would be the required minimum annual after-tax revenues? Click the icon to view the interest factors for discrete compounding when i-16% per year. The required minimum annual after-tax revenues would be $thousand. (Round to one decimal place.)

Answer 1

PV of annuity for making pthly payment
P = PMT x (((1-(1 + r) ^- n)) / i)
Where:
P = the present value of an annuity stream
PMT = the dollar amount of each annuity payment
r = the effective interest rate (also known as the discount rate)
i=nominal Interest rate
n = the number of periods in which payments will be made
PV of annual after tax cash outflow	PV of Annual cost + PV of cost
PV of annual cost	= 40000* (((1-(1 + 16%) ^- 13)) / 16%)
	213,693
PV of annual after tax cash outflow	=213693+190000	403,693
PV of Salvage value	=19000/(1+16%)^13	2,759
So PV of inflow should be =	403693-2759	400,934
PV of annual inflow	= Annual inflow* (((1-(1 + 16%) ^- 13)) / 16%)
400,934	= Annual inflow* 5.34233
Annual Inflow=	=400934/5.34233
Annual Inflow=	75,049