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Automated Manufacturers uses high-tech equipment to produce specialized aluminum products for its customers. Each one of these machines costs $1,480,000 to purchase plus an additional $52,000 a year to operate. The machines have a 6-year life after which they are worthless. What is the equivalent annual cost of one these machines if the required return is 16 percent?

Respuesta :

Answer: The machine costs 1,480,000 and has a life of 6 years with no salvage value. Which means that the depreciation cost of the machine each year is 1,480,000/6=246,666 and $52,000 operational cost which brings the annual cost to $298,666

But because the machines required rate of return is 16% we have to add in this as a cost as well so that annual cost will be

$298,666*1.16=$346,452

Explanation:

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