Kal Tech Engineering Systems is considering buying a CNC machining center for its operation in Tennessee. The net benefits in the first year is estimated to be $40,000 and increasing at the rate $5,000 for the next four years and stays at the same level as that of year 5 for the next 5 years. If MARR is 8%, determine the amount of money that the company can invest justifying on this machining center. A salvage value of 20% of the initial cost is reasonable to assume at the end of year 10.
A) $396,357
B) $416,182
C) $411,202
D) $399,500

Question

Quizplus · Accepted Answer

The correct answer is A. The net present value of the project is $396,357. This is calculated by taking the present value of the net benefits over the 10-year period and subtracting the initial cost of the machining center. The present value of the net benefits is $441,182, and the initial cost of the machining center is $45,000.

Kal Tech Engineering Systems Is Considering Buying a CNC Machining