Titanic Tools Uses Tool and Die Machines to Produce Machinery

question 69

Multiple Choice

Titanic Tools uses tool and die machines to produce machinery for other firms. The initial cost of one customized tool and die machine is $1.8 million. This machine costs $16,000 a year to operate.
Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this
Machine if the required return is 14%? Ignore taxes.

• A) $680,416.08
• B) $692,113.27
• C) $703,897.29
• D) $762,408.16
• E) $791,316.67

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Definitions:

Note Payable

A written promise to pay a certain amount of money, usually with interest, at a future date or over a period of time.

Market Interest Rate

The rate at which interest is paid by borrowers for borrowing funds in the market.

Compounded Annually

A method of calculating interest in which the interest earned each year is added to the principal, so that the balance doesn't merely grow, it grows at an increasing rate.

Present Value

The present value of a future amount of money or sequence of cash flows, based on a certain rate of return.