Determine the economic service life and corresponding AW for a machine that has the following cash flow estimates. Use an interest rate of 14% per year and hand solution. **Table: Salvage Value and Operating Cost Over Time**This table provides a detailed look at the depreciation and associated costs of a hypothetical asset over a period of seven years.**Columns:**1. **Year:** Represents the time in years from year 0 to year 7.2. **Salvage Value, $:** This indicates the estimated resale value of the asset at each year, starting from $100,000 at year 0 and gradually decreasing to $0 by year 7.3. **Operating Cost, $ per Year:** Represents the annual cost of operating the asset. It starts without cost in year 0 and becomes increasingly expensive each year, peaking at $49,000 by year 7.- **Year 0:** - Salvage Value: $100,000 - Operating Cost: $0- **Year 1:** - Salvage Value: $75,000 - Operating Cost: –$28,000- **Year 2:** - Salvage Value: $60,000 - Operating Cost: –$31,000- **Year 3:** - Salvage Value: $50,000 - Operating Cost: –$34,000- **Year 4:** - Salvage Value: $40,000 - Operating Cost: –$34,000- **Year 5:** - Salvage Value: $25,000 - Operating Cost: –$34,000- **Year 6:** - Salvage Value: $15,000 - Operating Cost: –$45,000- **Year 7:** - Salvage Value: $0 - Operating Cost: –$49,000**Summary:**The table illustrates the decline in value of the asset (salvage value) over time, alongside an increase in operational costs, highlighting typical depreciation patterns and cost considerations associated with asset management.

Equivalent Annual Value (EUAV) Equivalent annual value computation as ; -intial…

Answered: Determine the economic service life and…

Determine the economic service life and corresponding AW for a machine that has the following cash flow estimates. Use an interest rate of 14% per year and hand solution.

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

Determine the economic service life and corresponding AW for a machine that has the following cash flow estimates. Use an interest rate of 14% per year and hand solution.

**Table: Salvage Value and Operating Cost Over Time**

This table provides a detailed look at the depreciation and associated costs of a hypothetical asset over a period of seven years.

**Columns:**

1. **Year:** Represents the time in years from year 0 to year 7.

2. **Salvage Value, $:** This indicates the estimated resale value of the asset at each year, starting from $100,000 at year 0 and gradually decreasing to $0 by year 7.

3. **Operating Cost, $ per Year:** Represents the annual cost of operating the asset. It starts without cost in year 0 and becomes increasingly expensive each year, peaking at $49,000 by year 7.

- **Year 0:**
- Salvage Value: $100,000
- Operating Cost: $0

- **Year 1:**
- Salvage Value: $75,000
- Operating Cost: –$28,000

- **Year 2:**
- Salvage Value: $60,000
- Operating Cost: –$31,000

- **Year 3:**
- Salvage Value: $50,000
- Operating Cost: –$34,000

- **Year 4:**
- Salvage Value: $40,000
- Operating Cost: –$34,000

- **Year 5:**
- Salvage Value: $25,000
- Operating Cost: –$34,000

- **Year 6:**
- Salvage Value: $15,000
- Operating Cost: –$45,000

- **Year 7:**
- Salvage Value: $0
- Operating Cost: –$49,000

**Summary:**
The table illustrates the decline in value of the asset (salvage value) over time, alongside an increase in operational costs, highlighting typical depreciation patterns and cost considerations associated with asset management.

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