Income from recycling plastics is expected to be $2000 in Year 1 and increase by $500 a year for each of the next 5 years if you buy a sorting machine. ($2000 in Year 1, $2500 in Year 2, etc.)
a) Draw a cash flow diagram showing your expected income in years 1, 2, 3, 4, 5, and 6 assuming you buy the new machine.
b) What is the present worth of the expected income over the 6-year period assuming you buy the machine and the interest rate = 10%?
c) If the new sorting machine has an expected life of 6 years and a salvage value of $1500, what is the most you would be willing to pay for the machine if i = 10%?