Question

Larson Manufacturing is considering purchasing a new​ injection-molding machine for ​$360 comma 000360,000 to expand its production capacity. It will cost an additional ​$20 comma 00020,000 to do the site preparation. With the new​ injection-molding machine​ installed, Larson Manufacturing expects to increase its revenue by ​$86 comma 00086,000 per year. The machine will be used for fivefive ​years, with an expected salvage value of ​$73 comma 00073,000. At an interest rate of 1414​%, would the purchase of the​ injection-molding machine be​ justified?

Answer 1

Answer:

If I bougth the Machine at 14% interest.

This purchase is not justified

Depreciation expenses and credit interest are greater than the income generated

Explanation:

Machine 360000    

Adittional cost 20000    

Final Cost 380000    

Salvage Value 73000    

Machine value for depreciation 307000    

   

   

year 1 307000 61400 245600  

year 2 245600 61400 184200  

year 3 184200 61400 122800  

year 4 122800 61400 61400  

year 5 61400 61400 0  

   

   

Period Payment Capital Interest Loan

   

   360000

1 104.862 54.462 50.400 305.538

2 104.862 62.087 42.775 243.451

3 104.862 70.779 34.083 172.672

4 104.862 80.688 24.174 91.984

5 104.862 91.984 12.878 0

   

Depreciation 307000    

Interes        164.310    

Expenses 471.310    

   

Revenue       430.000