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You have built a new, more efficient machine that just saved you $1,500 in production costs over existing models. The savings is expected continue forever:
You have built a new, more efficient machine that just saved you $1,500 in production costs over existing models. The savings is expected continue forever: You expect a saving of $1,000 over the next year. After that, the machine will gradually wear out so that the savings decline at an annual rate of 2%. The annual interest rate is 5%. If someone is buying the machine from you today, which of the following is closest to the fair market value of the machine? (Hint: The fair market value represents the cost savings of the machine.) $14,286 $15,786 $33,333 $34,833 $40,367
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