Question

by installing a new injection molding machine into its assembly line, plastic molding Inc. can decrease its production cost by an estimated $35,000 the first year of installment, with an additional decrease of $4,000 each year throughout the life of the equipment. It is estimated the new equipment will have a 10 years useful life and a salvage equal to 10% of its initial cost. Use a nominal interest rate of 15% to calculate how much plastic molding Inc. can afford to pay for the new machine

Answer 1

Answer: $47,032

Explanation:

To find the value plastic inc can afford to pay, we have to find the present value of the cost reductions.

The present value can be found using a financial calculator

Cash flow for year 1 = $35,000

Cash flow each year from year two to ten =$4,000

I = 15%

Pv = $47,031.6