A company is considering investing $17,500 in a heat exchanger. The heat exchanger will last five vears, at which time it will be sold for $2.000, The maintenance cost at the end of the first vear is estimated to be $1.500.Maintenance costs for the exchanger are estimated to increase by $1,000 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to madeat the end of each year.a. Choose cash flow diagrams of both alternativesb. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments.Click the icon to view the interest and annuity table for discrete compounding when i= 8% per year.EOYEOY$2,00023452$1,500 $1,500 $1,500 $1,500 $1,500$1,500$2,500$3.500$4,500$5,500$17,500$17,500OD.C.EOY$2,000EOY$2,00012352.$1,500$2,500$3,500$4,500$5.500 $4.500 $3.500 $2,500 $1,500$5,500$17,500$17,500

Click the icon to view the interest and annuity table for discrete compounding when i=8% per year. EOY ΕΟΥ $2.000 2 3. 5 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $2,500 $3,500 $4,500 $5,500 $17,500 $17,500 C. OD. EOY $2,000 ΕΟΥ $2.000

Click the icon to view the interest and annuity table for discrete compounding when i=8% per year. EOY ΕΟΥ $2.000 2 3. 5 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $2,500 $3,500 $4,500 $5,500 $17,500 $17,500 C. OD. EOY $2,000 ΕΟΥ $2.000

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 company is considering investing $17,500 in a heat exchanger. The heat exchanger will last five vears, at which time it will be sold for $2.000, The maintenance cost at the end of the first vear is estimated to be $1.500.
Maintenance costs for the exchanger are estimated to increase by $1,000 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made
at the end of each year.
a. Choose cash flow diagrams of both alternatives
b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments.
Click the icon to view the interest and annuity table for discrete compounding when i= 8% per year.
EOY
EOY
$2,000
2
3
4
5
2
$1,500 $1,500 $1,500 $1,500 $1,500
$1,500
$2,500
$3.500
$4,500
$5,500
$17,500
$17,500
OD.
C.
EOY
$2,000
EOY
$2,000
1
2
3
5
2.
$1,500
$2,500
$3,500
$4,500
$5.500 $4.500 $3.500 $2,500 $1,500
$5,500
$17,500
$17,500

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