Capital versus Operating CostsOperating costs are incurred through the operation of physical plant or equipment needed to provideservice, examples include items such as labor and raw materials.Capital costs (capital recovery cost) are incurred by purchasing assets to be used in production and service.Normally capital costs are non recurring (one time) costs, whereas operating costs recur for as long as anasset is owned.Because operating costs recur over the life of a project, they tend to be estimated commonly on an annualbasis, so for the purposes of annual equivalent cost analysis, no special calculation is required. However,because capital costs tend to be one time costs, we must translate this one time cost into its annualequivalent over the life of the project.10. A drinking water treatment system costs $30,000, has a 10-year life and a salvage valueof $6,000. If the firm can earn an after-tax revenue of $5500, should it be purchased atan interest rate of 10%?5

This question is based on the concept of net present value. Net present value is calculated by…

Answered: 10. A drinking water treatment system…

Business

Accounting

10. A drinking water treatment system costs of $6.000. If the firm can earn an after-

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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