Consider a new machine at a bottling plant that has a first cost of $150000, operating and maintenance costs of $18900 per year, and an estimated net salvage value of $16000 at the end of 30 years. Assume an interest rate of 5%. What is the annual equivalent cost of the investment if the planning horizon is 30 years? $

Consider a new machine at a bottling plant that has a first cost of $150000, operating and maintenance costs of $18900 per year, and an estimated net salvage value of $16000 at the end of 30 years. Assume an interest rate of 5%. What is the annual equivalent cost of the investment if the planning horizon is 30 years? $

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Consider a new machine at a bottling plant that has a first cost of
$150000, operating and maintenance costs of $18900 per year, and an
estimated net salvage value of $16000 at the end of 30 years. Assume
an interest rate of 5%. What is the annual equivalent cost of the
investment if the planning horizon is 30 years?

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Step 1: Meaning - Equivalent annual cost

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Step 2: Calculation of cash outflows

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