Question

Acme, Inc. is evaluating a new project to produce rockets. The project will involve $500,000 to purchase a new machine. Every year, Acme will need to spend $10,000 to keep the machine running and the revenue is $195,000 per year by selling the rockets. Every 5 years, Acme will have to spend $20,000 to update the machine. Acme, Inc. expects that the machine will last for 20 years, and at the end of 20 years, Acme will be able to sell the machine for $50,000.

Answer 1

spend total to keep running = 200k
update total = 80k
revenue total = 3.9x10^6
to purchase is 500k

Answer 2

What is the annual operations and maintenance cost?

Answer 3

@PhoenixSoul

Answer 4

@Photon336

Answer 5

I'm sorry but i can not help right now. I have to go.Sorry :)

Answer 6

@mathmale

Answer 7

Hello, R-S! The details we're given are clear, but not the goal of this problem. When all has been said and done, we'll have bought the machine, used it, upgraded it, and then sold it after 20 years. But what are we to calculate? Something seems missing from the problem statement.

Answer 8

You see my question right? What is the annual operations and maintenance cost?

Answer 9

I actually thought about this more and think the answer is 10k because it's asking what is the ANNUAL operations and maintenance cost?

Answer 10

No, R-S, I do not see "You see my question right? What is the annual operations and maintenance cost?" in your original statement.

Regarding your latest statement: if you mean ONLY out of pocket expenses per year, and you neglect the purchase cost and other costs which are spread out over several years or decades, then yes. Otherwise you may have to take all expenses into account and figure out what that comes to per year, over 20 years.

Answer 11

I choose to leave it up to you to decide whether or not to take ALL expenses and ALL revenue into account, figuring out the annual net income, or to focus solely on the annual expenses and income PER YEAR listed.

Answer 12

okay

Answer 13

would the 500k be considered as an annual expense? What is confusing me is that it takes 500k to purchase a machine. They are not buying machines every year. So 500k would be considered to be part of the annual expense??

Answer 14

No. The $500K is an initial, one time expense. In determining annual income/outgo, we might divided that $500K by the expected life, 20 years, to get the pro-rated annual expense.
The problem states that the 20-year-old machine can be sold at the end of 20 years for $50,000. So, the net amount spent on the machine over that 20 yer span is ($500,000-$50,000), or $450,000. We can pro-rate that $450,000 over 20 years. What would the annual cost (just for the machine) be?

Answer 15

22,500 would be the annual cost just for the machine

Answer 16

Annual income = 195k per year
annual cost for the machine alone = 22,500
to keep machine running = 10k per year
to update the machine = 20k/5=4k every year

Answer 17

annual expense = 22,500+10k+4k = 36500

Answer 18

You're on the right track. All income and expenses do need to be on a monthly basis. If the income is $195,000 per year, how much is that per month? Have you calculated the monthly equivalent in every income and/or outgo category?

Answer 19

Have you considered the monthly cost of updating the machine?

Answer 20

195,000 per year -----> 16250 per month

Why do I need to consider monthly when the question is asking for yearly expenses?
No, I have not considered the monthly cost of updating the machine yet.

Answer 21

22,500 per year ----> 1,876 per month

Answer 22

wait... I am calculating the other expenses based on month

Answer 23

"You see my question right? What is the annual operations and maintenance cost?"

Mea culpa. Forget all I said about "monthly" income / expenses. Sorry indeed.

Answer 24

It's okay

Answer 25

$6,000
$10,000
$5,000
$20,000
$5,500

Answer 26

These are my choices for this hw problem btw

Answer 27

Break down income and expenses:

Acme, Inc. is evaluating a new project to produce rockets. The project will involve $500,000 to purchase a new machine. Every year, Acme will need to spend $10,000 to keep the machine running and the revenue is $195,000 per year by selling the rockets. Every 5 years, Acme will have to spend $20,000 to update the machine. Acme, Inc. expects that the machine will last for 20 years, and at the end of 20 years, Acme will be able to sell the machine for $50,000.

INCOME

Annual revenue: 195,000
Sale of old machine: 50,000

EXPENSES

Machine purchase 500,000
Maintenance 10,000

and so on. This will help you keeep track of which income and which expense items you've considered.

Answer 28

I won't be checking your math unless you ask me to check a specific item.

Answer 29

okay sounds good

Answer 30

annual expense = 22,500+10k+4k = 36500

Answer 31

^why wouldn't this be the answer?

Answer 32

Are you asked to list the totals for income and expenses separately?
Among the annual expenses, which one or several are you least sure you have right?

Answer 33

Acme, Inc. is evaluating a new project to produce rockets. The project will involve $500,000 to purchase a new machine. Every year, Acme will need to spend $10,000 to keep the machine running and the revenue is $195,000 per year by selling the rockets. Every 5 years, Acme will have to spend $20,000 to update the machine. Acme, Inc. expects that the machine will last for 20 years, and at the end of 20 years, Acme will be able to sell the machine for $50,000.

What is the annual operations and maintenance cost?

^^^This is what I meant by did you see my question because when I posted this problem I forgot the question as well.

Answer 34

10k for maintenance
4k for update
22,500 for machine alone

Answer 35

This question is a bit tricky because we have to decide for ourselves what's included in "operations and maintenance costs." Surely these categories would include "maintenance," "machine updates," but not the pro-rated cost of the machine. Apologies. You could still go back and review the INCOME and EXPENSES lists I began, and then focus solely on the expenses that you consider to be "operations and maintenance costs."

Answer 36

I emailed my instructor... I will discuss it with her. I think I am over complicating the problem. Thanks for your help though.

Answer 37

My pleasure.