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QUESTION 1) A construction company will spend 1.250.000 TL to purchase an excavator, which serves for 5 years. Operating and maintenance cost of the excavator
QUESTION 1) A construction company will spend 1.250.000 TL to purchase an excavator, which serves for 5 years. Operating and maintenance cost of the excavator at the end of the first year is estimated to be 106.000TL. This amount will increase by 20.000 TL per year during its operational life. The company expects to earn 650.000 TL per year for the first 3 years and 450.000TL per year for the last 2 years from the operations of the excavator. The salvage value of this excavator will be 150.000TL at the end of the 5 years. When the excavator is sold, the company is planning to buy a new excavator, which costs 2.250.000TL and will be used for another 5 years. The operating cost of the new excavator is predicted as 61.000TL. per year. Besides, there will be one major maintenance, which costs143.000 TL at the end of the 3rd year of its operational life. The income of the new excavator at the end of the first year is determined as 485.000TL. The income will decrease by 35.000TL annually during its operational life. There will be no salvage value for the second excavator. By calculating the net present value of the excavators, determine whether the investment of the company is feasible or not. For the first 5 years, the effective interest rate is given as 4% per year. For the last 5 years, the interest rate is given as 3% per quarter compounded monthly
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