Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 3 Sapphire Machining Company considers buying an automatic machine. The initial capital cost of the machine is $3.6M. It can be used for 5
Question 3 Sapphire Machining Company considers buying an automatic machine. The initial capital cost of the machine is $3.6M. It can be used for 5 years, and that it will be sold for $23,000 at the end of year 5. It is estimated that a total of 16,800 man-hours can be saved annually out of an A6 grade officer. (Note: an A6 grade officer works 2,100 man-hours per year). The yearly staff cost of an A6 grade officer is $330K. The machine maintenance cost is 10% p.a. of the initial capital cost. Suppose that the maintenance cost and the staff cost remain no change for the 5 years. (Assuming all payments and receipts occur at the beginning or at the end of a year respectively.) a) Prepare a cash flow table for the purchase. (17%) b) Calculate the NPV of the purchase based on the cost of capital at 6%. (7%) c) Is this a good investment for Sapphire? (1%)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started