Answer:
The best profit will be if the machine is purchased today (t=0). This will yield a 2,630,000 profit
Explanation:
we need to construct a formula for profit:
revenue: 328,000 x (10 - t )
being t the year of purchase, more we delay the purchase, less revenue we generate.
the machine will decrease during 5 year at 120,000 per year:
cost: 1,250,000 - 120,000 (5 -t)
Now, we can construct profit formula and check at which point is better:
proft: revenues - cost
Profit: 328,000 x (10-t) - (1,250,000 - 120,000(5-t))
Proft: 328,000 x 10 - 328,000t - (1,250,000 - 120,000x5 - 120,000t=
Profit: 3,280,000 - 328,000t - 1,250,000 + 600,000 + 120,000t
Profit: 2,630,000 -208,000t
As the time increase, our profit will decrease as the formula show that time is having a negative effect on profit.
