Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing.
Question:
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $230,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $8,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $20,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually.
What is the annual worth of this investment?
Financial Analysis with Microsoft Excel
ISBN: 978-1285432274
7th edition
Authors: Timothy R. Mayes, Todd M. Shank