A machine has no maintenance costs the first 5 years of operation. At the end of...

A machine has no maintenance costs the first 5 years of operation. At the end of years 6-10, the annual cost is $1000/yr. For years 11-15, the annual cost is $2000/yr. What is the equivalent annual cost for all of this maintenance if the interest rate is 10%?

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Expert Solution

Present worth of maint cost = 1000*(P/A,10%,5)*(P/F,10%,5) + 2000*(P/A,10%,5)*(P/F,10%,10)

= 1000*3.790787*0.620921 + 2000*3.790787*0.385543

= 5276.80

Equivalent annual cost of maint = 5276.80*(A/P,10%,15)

= 5276.80*0.131474

= 693.76

Rahul Sunny answered 2 years ago

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