The Rosco company is trying to decide if they should purchase Machine Alpha. The purchase price of
Question:
The Rosco company is trying to decide if they should purchase Machine Alpha. The purchase price of Machine Alpha is $345,700 and will require a working capital of $54,500.
Machine Alpha will require a major overhaul in year 3 and year 6 of $37,500.
The increase in revenue will be:
Years 1, Year 2, and Year 3 will have an annual increase in revenue of $98,700 (the same amount for all three years).
Year 4 - $128,400, Year 5 - $135,300, Year 6 - $86,100, Year 7 - $72,300 and Year 8 - 64,900.
At the end of year 8, the company will sell the machine for $18,700.
Calculate the net present value of Machine Alpha using a 16% rate of return.
Show your work and indicate if the Rosco Company should purchase Machine Alpha. Round your net present value answer to the nearest whole dollar.