Question
Spectacles Spectacles, is considering purchasing a new machine which it expects to cut production costs. The company believes that it will save $8,000 per year
Spectacles Spectacles, is considering purchasing a new machine which it expects to cut production costs. The company believes that it will save $8,000 per year over the next 11 years, the useful life of the machine. There will be annual cash expenses of $2,000 plus annual depreciation of $300 associated with the machine. The company will also have to perform major maintenance on the machine after 6 years. This will cost $9,000. The machine itself will cost a total of $70,000. At the end of the attractions useful life it can be scrapped for $700. The company only invests in projects if they have a payback period of 3 years or less or if they have a required rate of return (also known as the discount rate) of 6%. Calculate the company's net present value.
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