Question
In: Economics
New equipment is purchased for $40,000. It has a residual value of at the end of...
New equipment is purchased for $40,000. It has a residual value of at the end of the 10 years $2,500.00. Desired rate of return 12%. Operating expenses are expected to be $2000.00 the first year and increase by $500.00 each year during the life of the equipment. Is this a good investment assuming equivalent annual methods.
Solutions
Expert Solution
Solution:-
Equivalent Annual Operating Cost = A1 + G (A/G, i, N)
= 2000 + 500 (A/G, 12%, 10 years)
= 2000 + 500 (3.585)
= 2000 + 1,792.5
= 3,792.5
Annual Total Cost = 40,000 (A/P, 12%, 10 Years) + 3792.5
= 40,000 (0.1770) + 3792.5
= 7080 + 3792.5
= $10,872.5
Rahul Sunny answered 9 months agoRelated Solutions
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