Problem

The initial cost of purchase and installment of an automated shoe-making machine is $100,000. The indirect cost of operation of the factory allocated to this machine is $2,000 per year. The machine operates 4,000 hours each year and produces one shoe every 0.5 hour. The maintenance cost per year is $1,000. The shoes are sold to distributors at $10 each with 10% net profit. If the machine lasts five years and has a removal cost of $1,000 with no salvage value, what is the lifetime worth of this machine? Use a 6% annual interest rate.