Question

IPS Corp. will upgrade its package-labeling machinery. It costs $850,000 to buy the machinery and have it installed. Operation and maintenance costs, which are $11,000 per year for the first 3 years, increase by $1000 per year for the machine's 10-year life. The machinery has a salvage value of 12% of its initial cost. Interest is 25%. What is the future worth of cost of the machinery

Answer 1

Answer:

The future worth of cost of the machinery is –$8,227,391.25.

Explanation:

The value of an amount of money at a particular interest rate at some point in the future is referred to as future worth.

Note: See the attached excel file for the calculation of the future worth of cost of the machinery.

In the attached excel file, the discounting factor for each year is calculated as follows:

Discounting Factor = (100% + Interest)^Remaining years ………………. (1)

Where:

Interest = 25%

Remaining years = 10 – Number of current year

In the attached excel file, we have:

Total future worth =  (8,227,391.25) = –$8,227,391.25

Therefore, the future worth of cost of the machinery is –$8,227,391.25.

Download xlsx