consider the following if a farmer purchases a new piece of heavy mach
Consider the following: If a farmer purchases a new piece of heavy machinery, he will be able to increase annual sales over the next three years (after three years, the machine wears out). Sales will be increased $20,000/yr.for each of the three years of the machine's operational life(years 0 through 2). The machine will require an initial down payment of $25,000 (in year 0), with annual loan payments of $5,000 in each of the next two years. Annual operating and maintenance costs are $2,000/yr for all three years. At the end of the three years, the farmer can sell the equipment to a scrap metal dealer for $500. The annual interest (discount) rate is 7 %. Set up the net present value equation you would use to determine if the farmer should invest in the new equipment. Now, solve the equation. Should the farmer invest in this machinery? It would be a good idea to show your work!
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