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In: Economics

abc corp. has just paid $40000 for a new machine that it will use for 4...

abc corp. has just paid $40000 for a new machine that it will use for 4 years. at the end of the 4 years, the machine will have a salvage value of $10000. assume interest rate of 8%. what is the annualized cost of ownership(capital recovery) of the equipment?

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Expert Solution

The Net Present value of the machine = - 40000 + 10000/(1+8%)^4 = - 32649.7

The annualized cost of ownership = - PW*i*(1+i)^n/((1+i)^n - 1)

= - (-32649.7)*8%*(1+8%)^4/((1+8%)^4 - 1)

= $9,857.624

Thus, the correct answer is $9,857.624

Rahul Sunny answered 2 years ago
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