Question

A new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of five years. Increased productivity attributable to the equipment will amount to $10,000 per year after operating costs have been subtracted from the revenue generated by the additional production. If MARR is 10%, is investing in this equipment feasible? Use annual worth method.

Answer 1

It is feasible. 16,012.47 dollars

Step-by-step explanation:

We will calculate the present value of the increased productivity and the salvage value.

The productivity will be done with an ordinary annuity

while the salvage with a lump sum

`productivity * (1-(1+r)^(-time) )/(rate) = PV\\`

productivity: 10,000

n = 5 years

MARR = 10%

`10000 * (1-(1+0.1)^(-5) )/(0.1) = PV\\`

PV $37,908

`(Salvage)/((1 + rate)^(time) ) = PV`

Salvage: 5,000.00

time 5 years

MARR = 10%

`(5000)/((1 + 0.1)^(5) ) = PV`

PV 3,104.61

Then we calcualte the NPV which si the sum of the cash inflow or cash savings after subtracting the investing cost at year zero:

Net present value: $37,907.8677 + $3,104.6066 - 25,000 = $16,012.4743

it wil be feaseble as his NPV is positive.