A machine costing $80,000 to buy and $6,000 per year to operate will save mainly labor expenses in packaging over five years. The anticipated salvage value of the machine at the end of five years is $4,000.
a) If a 12% return of investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
b) If the service life is four years instead of five, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
c) If the annual operating cost increases 10%, say from $6,000 to $6,600, what will happen to the answer in (a)?