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Francis Corporation expects a demand of 30,000 units per year for a special purpose component for six years. The net return per unit, per year,
Francis Corporation expects a demand of 30,000 units per year for a special purpose component for six years. The net return per unit, per year, is $4.10. To produce the component, the company must buy a machine costing $245,000 with a life of six years and a salvage value of $47 000 after six years. The company estimates that repair costs will be $18,000 per year during Years 1 to (and including) 6. If Big Sky company requires a return on investment of 15.5% p.a., should it buy the machine?
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