Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 56

A junior mechanical engineering student is cooping this semester at Regency Aircraft, whichcustomizes the interiors of private and corporate jets. Her fi rst assignment is to develop the specifi -cations for a new machine to cut, shape, and sew leather or vinyl covers and trims. The fi rst cost isnot easy to estimate due to many options, but the annual revenue and M O costs should net out at$+15,000 per year over a 10-year life. Salvage is expected to be 20% of the fi rst cost. Determine thebreakeven fi rst cost of the machine to just recover its fi rst cost and a return of 8% per year under twoscenarios:
I: No outside revenue will be developed by the machine.
II: Outside contracting will occur with estimated revenue of $10,000 the fi rst year, increasing by $5000 per year thereafter.