Covington Corporation purchased a vibratory finishing machine for $23,000 in year 0. The useful life of...
Covington Corporation purchased a vibratory finishing machine for $23,000 in year 0. The useful life of the machine is 10 years, at the end of which the machine is estimated to have a salvage value of zero. The machine generates net annual revenues of $6,000. The annual operating and maintenance expenses are estimated to be $500. If Covington's MARR is 14%,
how many years will it take before this machine becomes profitable? Assume that the cash flows occur continuously throughout the year.
Homework Answers
Find out when the NPV = 0
Net revenue = 6000-500 =5500
NPV = -23000+5500*(P/A,14%,n)
0 = -23000+5500*(P/A,14%,n)
23000/5500 = P/A,14%,n
4.1818 = P/A,14%,N
N = 6.7 years or 7 years
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