Question

A new machine will cost $25,000. The machine is expected to last 4 years and has no salvage value. If the interest rate is 12%, determine the return and the risk associated with the purchase using the Present Worth Analysis technique.

Answer 1

this question os incomplete here is the remaining part of the question

The estimated annual savings and its probability is $7000 at 30%, $8500 at 40%, and $9500 at 30%. Return? Risk?

Answer:

1.45% return

14.95% risk

Step-by-step explanation:

12% = 0.12

time = 4 years

2500*0.12 *(1+0.12)⁴/(1+0.12)⁴-1

= 3000x(1.5735)/1.5735-1

= 3000x 2.7437

= 8231.1 per year

Probable annual savings =7000 x 0.3 + 8500 x 0.4 + 9500 x 0.3 = $8350 per year

8350 - 8231.1 =

= 118.9dollars per year

probable return = 118.9/8231.1 * 100

= 1.45%

associated risk

we first calculate minum return,then wecalculate the risk percentage

7000 – 8231.1

-1231.1

1231.1/8231.1

= 0.1495 x100

= 14.95%