A junior mechanical engineering student is cooping this semester at Regency Aircraft, which customizes the interiors of private and corporate jets. Her first assignment is to develop the specifications for a new machine to cut, shape, and sew leather or vinyl covers and trims. The first cost is not easy to estimate due to many options, but the annual revenue and M&O costs should net out at $+15,000 per year over a 10-year life. Salvage is expected to be 20% of the first cost. Determine the breakeven first cost of the machine to just recover its first cost and a return of 8% per year under two scenarios:

I: No outside revenue will be developed by the machine.

II: Outside contracting will occur with estimated revenue of $10,000 the first year, increasing by $5000 per year thereafter.

Solve using

(a) Hand

(b) Spreadsheet solutions.