Question
Frank currently spends $6,000 per year to hire temporary workers for maintaining the garden in his residence. He is planning to buy some equipment to
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Frank currently spends $6,000 per year to hire temporary workers for maintaining the garden in his residence. He is planning to buy some equipment to automate the maintenance process. This equipment will result in savings of $1,000 per year for the next 10 years. Assume no taxes and discount rate to be 10%.
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a) If the system costs $7,000 to install, what is the NPV of purchasing the new equipment? Assume that the system will have no value at the end of 10 years.
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b) If your answer to part a is negative, what additional savings per year is required for you to change your decision?
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