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From the data we can easily find the marginal costs for 0&M and risk of breakdowns. However, to calculate the marginal capital recovery cost, we need estimates of each year's market value: Year Market Value 1 $18,000 2 13,000 3 9,000 4 6,000 4,000 6. 3,000 7 2,500

From the data we can easily find the marginal costs for 0&M and risk of breakdowns. However, to calculate the marginal capital recovery cost, we need estimates of each year's market value: Year Market Value 1 $18,000 2 13,000 3 9,000 4 6,000 4,000 6. 3,000 7 2,500

Essentials Of Investments
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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how to calculate the market value in the table? please show details, thanks! 

EXAMPLE 13-2 A new piece of production machinery has the following costs. Investment cost = $25,000 Annual operating and maintenance cost = $2,000 in Year 1, then increasing by $500 per year Annual cost for risk of breakdown = $5,000 per year for 3 years, then increasing by $1,500 per year =7 years = 15% Useful life MARR Calculate the marginal cost of keeping this asset over its useful life. SOLUTION From the data we can easily find the marginal costs for O&M and risk of breakdowns. However, to calculate the marginal capital recovery cost, we need estimates of each year's market value: Year Market Value 1 $18,000 2 13,000 3 9,000 4 6,000 4,000 3,000 7 2,500
Transcribed Image Text:EXAMPLE 13-2 A new piece of production machinery has the following costs. Investment cost = $25,000 Annual operating and maintenance cost = $2,000 in Year 1, then increasing by $500 per year Annual cost for risk of breakdown = $5,000 per year for 3 years, then increasing by $1,500 per year =7 years = 15% Useful life MARR Calculate the marginal cost of keeping this asset over its useful life. SOLUTION From the data we can easily find the marginal costs for O&M and risk of breakdowns. However, to calculate the marginal capital recovery cost, we need estimates of each year's market value: Year Market Value 1 $18,000 2 13,000 3 9,000 4 6,000 4,000 3,000 7 2,500
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