Buffalo Manufacturing Is Considering Purchasing New Equipment with an Initial

Essay

Buffalo Manufacturing is considering purchasing new equipment with an initial cost of
$65,000 and zero market value at any time of its useful life. The company expects this new equipment to generate additional net revenue of $6700 per year. Due to the harsh environment in which the equipment will be operated, the useful life of the equipment is uncertain. The estimated probabilities of different useful lives are shown below. Calculate the expected present worth and variance of present worth associated with the purchase of the equipment. Assume the company's MARR is 11% per year. $$\begin{array} { | l | l | } \hline \text { Useful life, Years (N) } & P ( N ) \\\hline 3 & 0.1 \\\hline 4 & 0.1 \\\hline 5 & 0.15 \\\hline 6 & 0.18 \\\hline 7 & 0.47 \\\hline\end{array}$$