Labco Scientific sells high-purity chemicals to universities, research laboratories andpharmaceutical companies. The company wants to invest in new equipment that willreduce shipping costs by better matching the size of the completed products withthe size of the shipping container. The new equipment is estimated to cost $575,000to purchase and install now. (See cash flow diagram below)j= 8%A=?134A= Represents savings every year$575,000The correct equation to calculate how much Labco must save each year for 5 yearsin order to justify the investment at an interest rate of 8% per year is:0.05(1+0.05)*((1+0.05)* –1)A = 575, 0000.05A = 575, 000((1+0.05)*–1)0.08(1+0.08)((1+0.08) –1)A = 575, 000O A = 575, 000(1+0.08)°

by using the present value we find the value of A which are as follow-

$575,000 The correct equation to calculate how much Labco must save each year for 5 years n order to justify the investment at an interest rate of 8% per year is: 0.05(1+0.05)* (1+0.05)* –1) A = 575, 000 0.05 A = 575, 000

$575,000 The correct equation to calculate how much Labco must save each year for 5 years n order to justify the investment at an interest rate of 8% per year is: 0.05(1+0.05)* (1+0.05)* –1) A = 575, 000 0.05 A = 575, 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

Labco Scientific sells high-purity chemicals to universities, research laboratories and
pharmaceutical companies. The company wants to invest in new equipment that will
reduce shipping costs by better matching the size of the completed products with
the size of the shipping container. The new equipment is estimated to cost $575,000
to purchase and install now. (See cash flow diagram below)
j= 8%
A=?
1
3
4
A= Represents savings every year
$575,000
The correct equation to calculate how much Labco must save each year for 5 years
in order to justify the investment at an interest rate of 8% per year is:
0.05(1+0.05)*
((1+0.05)* –1)
A = 575, 000
0.05
A = 575, 000
((1+0.05)*–1)
0.08(1+0.08)
((1+0.08) –1)
A = 575, 000
O A = 575, 000(1+0.08)°

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