A manufacturing company is considering investing in a new cutting machine that will cost $120,000 and has an annual maintenance cost of $12,000. There is no salvage value for the machine.
If the machine will last for a total of 5 years under these conditions and the costs do not change, what is the net present worth (NPW) of this investment at an interest rate of 11%?
If the company wants to use the machine for 10 years, it will need to spend $45,000 at the end of 5 years to overhaul the machine. The annual maintenance cost remains $12,000 for each year including year 5. If the equipment lasts for a total of 10 years under these conditions, what is the NPW of this investment at an interest rate of 11%?
Assume that the company is required to spend $45,000 at the end of every 5 years to overhaul the machine, and the annual maintenance costs do not change. Graph the NPW of the investment as a function of the number of years where N = 5, 10, 15, 20, …, 60 years. Use Excel to graph the NPW as a function of the number of years. What is the limit of the net present worth as N approaches infinity? Is there a way you can calculate the NPW for an infinite service life?