Question

pany is considering the purchase of a new bubble packaging machine. If the machine will provide $15,000 annual savings for 12 years and can be sold for $48,000 at the end of the period, what is the present value of the machine investment at a 15% interest rate with savings realized at year end

Answer 1

Present Value= $74,018.97

Step-by-step explanation:

Giving the following information:

The machine will provide $15,000 annual savings for 12 years and can be sold for $48,000 at the end of the period.

Interest rate= 15%

To determine the present value of the savings, first, we need to determine the future value at the rate provided.

We need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual save

FV= {12,000*[(1.15^12)-1]}/ 0.15

FV= 348,020 + 48,000= $396,020

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 396,020/1.15^12= $74,018.97