A newspaper is considering purchasing locked vending machines to replace open newspaper racks for the sale of its newspapers in the downtown area. The newspaper vending machines cost $45 each. It is expected that the annual revenue from selling the same quantity of newspapers will increase $12 per vending machine. The useful life of the vending machine is unknown.
(a) To determine the sensitivity of rate of return to useful life, prepare a graph for rate of return versus useful life for lives up to 8 years.
(b) If the newspaper requires a 12% rate of return, what minimum useful life must it obtain from the vending machines?
(c) What would be the rate of return if the vending machines were to last indefinitely?