Equipment needed at a Valero Corporationrefinery for the conversion of corn stock toethanol, a cleaner burning gasoline additive,will cost $50,00 to be used for 4 years, with anannual operating cost (AOC) of $10,000, and asalvage value of $35,000 after 4 years.Determine the AW values for one and two lifecycles at 15 % per year.

AW is the acronym and stands for the annual worth which means it is the cash flow which is the equal…

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Business

Accounting

Determine the AW values for one and two life cycles at 15 % per year.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Equipment needed at a Valero Corporation
refinery for the conversion of corn stock to
ethanol, a cleaner burning gasoline additive,
will cost $50,00 to be used for 4 years, with an
annual operating cost (AOC) of $10,000, and a
salvage value of $35,000 after 4 years.
Determine the AW values for one and two life
cycles at 15 % per year.

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