Question

Final Finishing is considering 3 mutually exclusive alternatives for a new polisher. Each alternative has an expected life of 15 years and no salvage value. Polisher 1 requires an initial investment of $23,400 and provides annual benefits of $4,395. Polisher 2 requires an initial investment of $13,600 and provides annual benefits of $1,820. Polisher 3 requires an initial investment of $18,600 and provides annual benefits of $3,640. MARR is 15%/year. What is the future worth of Polisher 1?

Answer 1

$18,708.66

Step-by-step explanation:

The future worth of Polisher 1 can be computed using the future value formula in excel stated below:

=fv(rate,nper,pmt,-pv)

rate is the minimum acceptable rate of return of 15%

nper is the number of years of investment i,e 15 years

pmt is the yearly cash inflow of $4,395

pv is the amount committed to the investment,$23,400

=fv(15%,15,4395,-23400)=$18,708.66

The future worth of polisher 1 is $18,708.66

This implies that the investment is not likely to be worthwhile since the future worth is less than present worth of $23,400