Magnum Electronics Company expects a demand of 20 000 units per year for a special-purpose component during

Question:

Magnum Electronics Company expects a demand of 20 000 units per year for a special-purpose component during the next six years. Net return per unit is $4. To produce the component, Magnum must buy a machine costing $250 000 with a life of six years and a of $40 000 after six years. The company estimates that repair costs will be $20 000 per year during Years 2 to 6. If Magnum requires a return on investment of 18%, should it market the component?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...