A machine costing $25,000 to buy and $3,000 per year to operate will save mainly labor expenses

Question:

A machine costing $25,000 to buy and $3,000 per year to operate will save mainly labor expenses in packaging over six years. The anticipated salvage value of the machine at the end of six years is $5,000.
(a) If a 10% return on investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
(b) If the service life is five years instead of six years, what is the minimum required annual savings in labor for the firm to realize a 10% return on investment?
(c) If the annual operating cost increases 10%, say, from $3,000 to $3,300, what will happen to the answer to (a)?

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...

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