Acme Produce, Inc. wishes to buy a potato processing unit for their plant. Acme's engineers have negotiated a contract that covers the annual maintenance costs for the first two years, with Acme incurring annual maintenance costs beginning at the end of year 3. Acme's engineers estimate that the annual maintenance will cost $45,000. If the installation cost (including purchase price) for the unit is $140,000, what is the present value of the machine?
You are to assume
- Acme will maintain the machine for 8 years after its installation (including the two years covered by the manufacturer) and then the machine will be discarded, with zero value.
- Acme will not perform any maintenance operations in the 8th year.
- Acme's MARR is 15%.