A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment A (year-zero $) Initial investment Net annual revenue $9,800 $3,000 Market value at end of useful life Useful life, years $0 12 Equipment B (actual $) $11,200 $4,000 $0 12 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 7.69% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is A. $18,355 B. $13,176 ○ C. $12,800 ○ D. $8,783 2. The PW of Equipment B is ○ A. $15,200 B. $26,340 ○ C. $13,577 OD. $19,435
A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment A (year-zero $) Initial investment Net annual revenue $9,800 $3,000 Market value at end of useful life Useful life, years $0 12 Equipment B (actual $) $11,200 $4,000 $0 12 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 7.69% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is A. $18,355 B. $13,176 ○ C. $12,800 ○ D. $8,783 2. The PW of Equipment B is ○ A. $15,200 B. $26,340 ○ C. $13,577 OD. $19,435
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars.
Equipment A
(year-zero $)
Initial investment
Net annual revenue
$9,800
$3,000
Market value at end of useful life
Useful life, years
$0
12
Equipment B
(actual $)
$11,200
$4,000
$0
12
The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 7.69% per year over the next several years, determine the PW of each equipment.
1. The PW of Equipment A is
A. $18,355
B. $13,176
○ C. $12,800
○ D. $8,783
2. The PW of Equipment B is
○ A. $15,200
B. $26,340
○ C. $13,577
OD. $19,435
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education