A manufacturer of digital freeze-drying systems can reduce product recalls by 10% if it purchasesnew packaging equipment. If the cost of the new equipment is expected to be $40,000 four yearsfrom now, how much could the company afford to spend now (instead of 4 years from now) if ituses a minimum attractive rate of return of 12% per year? Prior to solving for the initial cost of thepackaging equipment, identify the engineering economy symbols with their corresponding valuesand draw the cash flow diagram

Answered: A manufacturer of digital freeze-drying…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A manufacturer of digital freeze-drying systems can reduce product recalls by 10% if it purchases
new packaging equipment. If the cost of the new equipment is expected to be $40,000 four years
from now, how much could the company afford to spend now (instead of 4 years from now) if it
uses a minimum attractive rate of return of 12% per year? Prior to solving for the initial cost of the
packaging equipment, identify the engineering economy symbols with their corresponding values
and draw the cash flow diagram

Expert Solution

Introduction

The engineering economy symbol is explained below:

The present value of a future sum of money or stream of cash flows, assuming a certain rate of return, is known as PV. The value of PV is to be found.

The worth of a present asset at a specific period in the future supported by an expected rate of growth is called the future value of the initial cost, or FV. The value of FV is $40,000.

"R" stands for the rate of return, which is applied to the investment over a given period. The value of r is 12% per year.

The symbol "n" denotes the number of years, which is 4 years.