2. Payback Period/Breakeven

A. You purchase a new dozer for $214,000 and you expect that it will increase your productivity enough to earn you $8,500 per month. The manufacturer has informed you that there is a maintenance cost for this machine of $1,095 after the first month, which increases by $15 every month thereafter. How long will it take for you to break even for this investment? Assume an APR of 12% compounded monthly and no salvage value.

B. You purchase a new tractor for $110,000 and you expect that it will increase your productivity enough to earn you $18,500 per year. The manufacturer has informed you that there is a maintenance cost for this machine of $8,050 after the first year, which increases by 1% each year thereafter. The salvage value is $80,000 minus 2% per year, would you have broken even on this investment after 5 years? Assume an APR of 6% compounded yearly