You are considering purchasing a CNC machine which costs $130,000. This machine will have an estimated...
You are considering purchasing a CNC machine which costs $130,000. This machine will have an estimated service life of 99 years with a net after-tax salvage value of $13,000. Its annualafter-tax operating and maintenance costs are estimated to be $57,000. To expect an 20% rate of return on investment, what would be the required minimum annual after-tax revenues?
The required minimum annual after-tax revenues would be $____thousand. (Round to one decimal place.)
Homework Answers
Let the revenue per year be X
Present value of future cash flow=present value value of annual cash flow+present value of salvage value
PW (i) = [D+A(P/A,i,N)+F(P/F,i,N)
PW(0.20) = -130000+(X-57000)(P/A,0.20,99)+13000(P/F,0.20,99)]
PW(0.20) = -130000+(X-57000)(5)+13000(0.0000000145)
PW = -130000+5X-285000+0.0001885
5X=414999.99
X=$82999.9 is the required minimum annual after tax revenues
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