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3. Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 8 years and spend $6000 a year on maintaining it. Estimated annual net receipts from equipment rentals would be $14,400. It is estimated the rental equipment could be sold for $80,000 at the end of 8 years. If the buyer wants a 7% rate of return on his investment, what is the maximum price he should pay for the equipment?

3. Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 8 years and spend $6000 a year on maintaining it. Estimated annual net receipts from equipment rentals would be $14,400. It is estimated the rental equipment could be sold for $80,000 at the end of 8 years. If the buyer wants a 7% rate of return on his investment, what is the maximum price he should pay for the equipment?

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: The Basic Tools Of Finance
Section: Chapter Questions
Problem 3CQQ
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3. Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 8 years and spend $6000 a year on maintaining it. Estimated annual net receipts from equipment rentals would be $14,400. It is estimated the rental equipment could be sold for $80,000 at the end of 8 years. If the buyer wants a 7% rate of return on his investment, what is the maximum price he should pay for the equipment?
Transcribed Image Text:3. Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 8 years and spend $6000 a year on maintaining it. Estimated annual net receipts from equipment rentals would be $14,400. It is estimated the rental equipment could be sold for $80,000 at the end of 8 years. If the buyer wants a 7% rate of return on his investment, what is the maximum price he should pay for the equipment?
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