An industrial firm is considering purchasing several programmable controllers and automating their manufacturing operations. It is estimated
Question:
An industrial firm is considering purchasing several programmable controllers and automating their manufacturing operations. It is estimated that the equipment will initially cost $150,000, and the labor to install it will cost $45,000. A service contract to maintain the equipment will cost $5,000 per year. A trained machine operator will have to be hired at an annual salary of $40,000. Also estimated is an approximate $15,000 annual income-tax savings (cash inflow). How much will this investment in equipment and services have to increase the annual revenues after taxes in order for the firm to break even? The equipment is estimated to have an operating life of 10 years with no salvage value (because of obsolescence). The firm’s MARR is 12%.
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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