Answer Happy

Cervantes Company is considering an investment in a new machine. Managers at the company are uncertain about the economic life of the machine, because of the speed of innovation in the technology. The machine requires an investment of $3 million. After-tax cash flows are estimated to be $1,132,075 each year the machine is operating (and not obsolete). The company uses a 10 percent discount rate in evaluating capital investments. Use Exhibit A.9. Required: Wi at is the minimum economic life of the machine (in whole years) that would be required for it to have a positive net present value? Minimum economic life years
Exhibit A.9 Present Value of an Annuity of $1 Year 5% 65 85 105 125 145 155 165 185 1 2 3 0.952 0943 0.926 0.909 0.893 0877 0.870 0.862 0.847 0.833 1.859 1.833 1.783 1.736 1690 1647 1626 1.605 1.566 1.528 2.723 2.673 2577 2487 2402 2322 2283 2246 2.174 2.106 3.546 3.465 3:312 3.170 3.037 2914 2855 2.798 2.690 2.589 4.329 4212 3.993 3.791 3.605 3.433 3.352 3.274 3.127 2.991 5.076 4.917 4.623 4.355 4.111 3.889 3.784 3.685 3.498 3.326 4 5 6 7 5.786 5.582 5.206 4.868 4.561 4.288 4.160 4,039 3.812 3.605 8 6,463 6210 5.747 5.335 4968 4.639 4.487 4344 4.078 3,837 7.108 6.802 6.247 5.759 5.328 4916 4.772 4.607 4300 4,031 10 7.722 7.360 6.710 6.145 5.650 5.216 5.019 4.833 4494 4.192 II 8.306 7.887 7.139 6.495 5.938 5:453 5.234 5.0294,656 4.327 12 8.863 8,384 7.536 6.814 6.194 5.660 5.421 5.197 4.793 4.439 13 9.394 8.853 7.904 7.103 6.424 5.842 5583 5342 4910 4.533 14 9.899 9.295 8.244 7.367 6.628 6.002 5 725.468 5.00$ 4,611 15 10.380 9.712 8.559 7.606 6,811 6142 5.847 5.575 5.092 4675 Year 225 245 25 266 28 30 325 345 355 40% 1 0.820 0.806 0.500 0.794 0.781 0.769 0.758 0.746 0.741 0.714 2 3 1.492 1.457 1.440 1.424 1.392 1.361 1.331 1.303 1.289 1.224 2042 1981 1952 1923 1.865 1816 1.766 1.719 1.696 1.599 2.494 2.404 2.362 2.320 241 2.166 2.096 2.029 1.997 1.849 4 $ 2.564 2.745 2.689 2.635 2.532 2436 2345 2.260 2.220 2.035 6 3.167 3020 2.951 2.885 2.759 2643 2.54 2.433 2.385 2.168 7 3416 3.242 3.161 3.080 2.937 2.02 2677 2562 2508 2.263 8 9 10 11 3.619 3.421 3.329 3.2413.076 2925 2.756 2.658 2.595 2331 3.736 3.566 3.463 3.366 3.134 3019 2.565 2.730 2.605 2.379 3.9233682 3.571 3.465 3200 3092 2930 2.754 2.715 2414 4035 1.776 3.656 3543 3335 3.117 2.978 2.824 2.752 2:35 4.127 3.51 3.725 3.606 3.387 3190 3,013 283 2.779 2456 4.20) 3.912 3.750 3.656 3.427 322) 3010 2.876 2.799 2469 4365 3962 3.34 3.605 3.159 339 3.061 2.992.2514 2475 43154001 3.859 2726 3.43 2765 3.076 2.905 285 2484 12 13 14 19