Question: The project management team lead is evaluating a project proposal from their engineering staff. The staff have proposed a capital purchase of a new machine
The project management team lead is evaluating a project proposal from their engineering staff. The staff have proposed a capital purchase of a new machine for use.
The year zero purchase costs are estimated as $30,000 with an additional (one-time) investment of $8,000 at the end of the second year of operation.
Annual operating and maintenance (O&M) costs are estimated as $6,000 per year.
Installation of the new machine is expected to provide revenue of $8,000 for the first year, $10,000 for year 2, $12,00 for year 3 and then $14,000 for years 4 through 12.
The company currently uses a MARR of 12% for project assessment.
(a) Prepare a Cash flow diagram for this project.
(b) What is the life-span (planning horizon) for this project?
(c) What is the net present value (NPV) for this project?
d) What is annual worth (or cost) for this project?
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