Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs
$220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are
estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per
year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must
borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments,
with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10%
compounded annually.
Part a
What is the annual worth of this investment? $
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