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An investor has paid $200,000 for a machine that is estimated to produce 2,000 product units per year for each of the next three years
An investor has paid $200,000 for a machine that is estimated to produce 2,000 product units per year for each of the next three years when the machine is estimated to be obsolete with a zero salvage value. The product price is the "unknown" to be calculated, so it is estimated to be $X per unit in year one escalated dollars and to increase 5% in year two above the year one value and an additional 8% in year three. Total operating costs are estimated to be $15,000 in year one escalated dollars with this amount increasing 10% in year two and an additional 8% in year three. The annual inflation rate is estimated to be 5%. What must be the year one, two and three escalated dollar product selling price if the investor is to receive a 12% annually compounded constant dollar ROR on invested dollars
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