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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5d0be29d-f11d-4f92-aa2b-b5db07db5679%2F3ebabce6-fa16-49be-af66-353aac4f1328%2Fg1vs4mc_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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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