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What salvage value of the Touchet Industries drill press will make the two alternatives equivalent, assuming an interest rate of 10%

User Pdubois
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Answer:

the numbers are missing, so I looked for a similar question and found the attached image:

Wallula machine

cash flow year 0 = -$30,000

cash flow year 1 = -$1,500

cash flow year 2 = -$1,500

cash flow year 3 = -$1,500

cash flow year 4 = -$1,500

cash flow year 5 = -$1,500

cash flow year 6 = $3,500

the NPV = -$33,710.52

Touchet machine

cash flow year 0 = -$36,000

cash flow year 1 = -$2,000

cash flow year 2 = -$2,000

cash flow year 3 = -$2,000

cash flow year 4 = -$2,000

cash flow year 5 = -$2,000

cash flow year 6 = -$2,000 + ?

NPV must equal -$35,605.91

the present value of the initial outlay and the first 5 cash flows is -$43,581.57

-$35,605.91 = -$43,581.57 - $2,000/1.1⁶ + ?/1.1⁶

-$35,605.91 = -$44,710.52 + ?/1.1⁶

$9,104.61 = ?/1.1⁶

$9,104.61 x /1.1⁶ = ?

? = $16,129.37

the salvage value of Touchet's machine must be $16,129.37 ≈ $16,129

What salvage value of the Touchet Industries drill press will make the two alternatives-example-1
User Niegus
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