McMillan Company manufactures electronic flow sensors that are designed as an alternative to ball-and-tube rotometers. The company recently spent $3 million to increase the capacity of an existing production line. If the extra revenue generated by the expansion amounts to $200,000 per month, how long will it take for the company to recover its investment at an interest rate of 12% per year, compounded monthly? Solve using (a) tabulated factors and (b) a spreadsheet or calculator.
What will be an ideal response?
(a) 3,000,000 = 200,000(P/A,1%,n)
(P/A,1%,n) = 15.000
From 1% table, n is between 16 and 17; therefore, n = 17 months
(b) Spreadsheet and calculator functions are = NPER(1%,200000,-3000000) and
NPER(1,200000,-3000000,0), respectively. Display is 16.3 months.
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