Question
a) The capitalised cost of a machine is 10000$. The original purchase price of the machine is 1000$, scrap value is 500$ and the machine
a) The capitalised cost of a machine is 10000$. The original purchase price of the machine is 1000$, scrap value is 500$ and the machine has a useful life of 2 years. Calculate the annual maintenance cost of the machine if the annual interest rate is 4,2%.
b) Prepare a straight line depreciation schedule for the machine of part a).
c) For your new company you have decided to use the technology described in part a) for production. Additionally have to pay an initial setup cost of 5000$ (just once) to start your company. Each year you expect to have marketing costs equal to 100$ and you expect annual revenues of 900$ (assume all costs and revenues occur at the end of the year). Your cost of capital is equal to the annual interest rate of 4,2%, as before. Calculate the NPV of your company.
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