Answer:
The project is viable as the net present value is positive. The project yields even more than the cost of capital
Explanation:
for the cost of the mahcine we must include all the cost for leave it ready to use.
So, we add the purchase and installation cost:
250,000 + 20,000 = 270,000 investment cost.
revenue of 90,000
time of 5 years
and salvage value of 75,000 at the end of useful life.
Present value of the salvage value: present value of a lump sum
[tex]\frac{Salvage }{(1 + rate)^{time} } = PV[/tex]
Salvage 75,000.00
time 5.00
rate 0.12
[tex]\frac{75000}{(1 + 0.12)^{5} } = PV[/tex]
PV 42,557.01
Present value of revenues: will be considered ordinary annuity
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 90,000
time 5
rate 0.15
[tex]90000 \times \frac{1-(1+0.15)^{-5} }{0.15} = PV\\[/tex]
PV $324,429.86
Net present value:
present value of inflow less present value of outflow:
324,429.86 + 42,557.01 -270,000 = 96.986,87
