1 The owner of a business is considering investing $55,000 in new equipment. He estimates that the net cash flows will be $5,000 during the first year, but will increase by $2,500 per year the next year and each year thereafter. The equip- ment is estimated to have a 10-year service life and a net salvage value of $6,000 at that time. The firm's interest rate is 12%. (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues). (c) Determine whether this is a wise investment.

1 The owner of a business is considering investing $55,000 in new equipment. He estimates that the net cash flows will be $5,000 during the first year, but will increase by $2,500 per year the next year and each year thereafter. The equip- ment is estimated to have a 10-year service life and a net salvage value of $6,000 at that time. The firm's interest rate is 12%. (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues). (c) Determine whether this is a wise investment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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