Question

You are considering purchasing a CNC machine which costs $250,000. This machine will have an estimated service life of 14 years with a salvage value of $15,000. Its annual operating and maintenance costs are estimated to be $38,000. To expect an 15% rate of return on your investment, what would be the required minimum annual revenues

Answer 1

$81,301.80

This is the yearly reveneus required to break even the project at 15% return

Step-by-step explanation:

We need to solve for the equivalent annual cost to break-even financially at 15%

PV of the salvage value

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

Maturity $15,000.00

time 14.00

rate 0.15000

`(15000)/((1 + 0.15)^(14) ) = PV`

PV 2,119.9299

list price: 250,000 - quota: 2,119.93 = 247,880.07

Now we solve for the equivallent annuity payment for this:

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

PV 247,880.07

time 14

rate 0.15

`247880.07 / (1-(1+0.15)^(-14) )/(0.15) = C\\`

C $ 43,301.795

Now, we add up the maintenance cost:

43,301.80 + 38,000 = 81,301.8

This is the yearly reveneus required to break even the project at 15% return