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?

Question

Business

Hayden Nash

11 July, 09:09

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?

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Ronnie Sullivan · Answer 1

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