The present value of the machine is $1 million.
The scrap value is expected to be $50,000.
The machine's effective life is estimated to be 20 years.
To calculate the sum to be invested every year at 13.25% compounded annually for 20 years, we need to find the future value of the machine's present value:
Future Value = Present Value * (1 + interest rate)^number of years
Future Value = $1,000,000 * (1 + 0.1325)^20
Future Value = $1,000,000 * 2.484905
Future Value = $2,484,905
The replacement machine will cost 30% more than the present value of the old machine:
Replacement Cost = Present Value * (1 + 30%)
Replacement Cost = $1,000,000 * (1 + 0.30)
Replacement Cost = $1,000,000 * 1.30
Replacement Cost = $1,300,000
To find the sum to be invested every year to replace the machine, we subtract the expected scrap value from the replacement cost and divide it by the future value formula:
Sum to be invested = (Replacement Cost - Scrap Value) / Future Value
Sum to be invested = ($1,300,000 - $50,000) / $2,484,905
Sum to be invested = $1,250,000 / $2,484,905
Sum to be invested = 0.502 * 100
Sum to be invested = 50.2%
Therefore, the sum to be invested every year at 13.25% compounded annually for 20 years to replace the machine is 50.2%.
Machine cost a company 1 million and its affective life is estimated to be 20 years. If the scrap is expected to realize 50000 only the sum to be invested every year at 13.25% compounded annually for 20 years to replace the machine which cost 30% more than its present value is:
1 answer
1 answer