# The company you work for has a high speed 5-axis milling machine which was purchased 5 years ago for

The company you work for has a high speed 5-axis milling machine which was purchased 5 years ago for \$200,000 and has a 10 year life. This machine is currently idleand can be used to make a product designed by a research institute
which requires at \$10,000 license fee to use their design. Tooling costs \$5000. Materials and consumables (cutting fluids, milling cutters, power, etc) are budgeted at\$40 per product. Your company applies an overhead rate of 25% on all direct
costs to cover indirect costs.

2.1 At a sale price of \$150, what is the breakeven point? (Show all calculations)

2.2 Using MACRS, what is the book value of the 5-axis milling machine?

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2.3 Your company borrowed \$150,000 at a nominal annual interest of 4% compounded quarterly to buy the machine. What was the effective interest rate?

2.4 The market has changed since your company bought the machine; it now seems possible that it could be sold for as much as \$20,000 5 years from now; what is thepresent value (i=4%)? Will this affect the company’s taxes? If so, how?

2.5 Indicate if the following statements are True or False
True False After the breakeven point, no costs are incurred
True False Increasing the sale price lowers the number of products you need to
sell to break even
True False Net Equivalent Uniform Annual Analysis will give a different rank ordering of a set of options being evaluated than Present Worth analysis