Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $98,000 and has an annual maintenance cost of $10,800. There is also an additional overhauling cost of $23,000 for the equipment once every four years. Assuming that this equipment will last infinitely under these conditions, what is the capitalized equivalent cost of this investment at an interest rate of 15%? Click the icon to view the interest factors for discrete compounding when /=15% per year.
Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $98,000 and has an annual maintenance cost of $10,800. There is also an additional overhauling cost of $23,000 for the equipment once every four years. Assuming that this equipment will last infinitely under these conditions, what is the capitalized equivalent cost of this investment at an interest rate of 15%? Click the icon to view the interest factors for discrete compounding when /=15% per year.
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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![**Investment Analysis in Manufacturing Equipment**
**Scenario:**
Geo-Star Manufacturing Company is evaluating a new investment in a punch-press machine. The specifics of the investment are as follows:
- **Initial Cost:** $98,000
- **Annual Maintenance Cost:** $10,800
- **Additional Overhauling Cost Every Four Years:** $23,000
The equipment is expected to last indefinitely under these assumptions. The task is to determine the capitalized equivalent cost of this investment at an interest rate of 15%.
**Instructions:**
1. Click the provided icon to view interest factors for discrete compounding when \( i = 15\% \) per year.
2. Input the result in the field provided, rounding the capitalized equivalent cost to the nearest whole number.
**Capital Cost Calculation:**
- **Formula Required:**
\[ P = \frac{A}{i} \]
Where:
- \( P \) = Capitalized Equivalent Cost
- \( A \) = Annual Cost
- \( i \) = Interest Rate (15% in this case)
**Interactive Element:**
- Slide the input to the nearest whole number to find the answer.
**Interest Factors Table:**
The table provided helps in understanding the factors needed for various calculations related to compounding and payment streams. It consists of:
1. **Single Payment**:
- **Compound Amount Factor (F/P, i, N)**
- **Present Worth Factor (P/F, i, N)**
2. **Equal Payment Series**:
- **Compound Amount Factor (F/A, i, N)**
- **Sinking Fund Factor (A/F, i, N)**
- **Uniform Series Compound Amount Factor (A/P, i, N)**
- **Capital Recovery Factor (A/P, i, N)**
Here is a detailed breakdown of a few columns:
**N (Periods)**: Number of time periods.
- Ranges from 1 to 10.
**Compound Amount Factor (F/P, i, N)**:
- Multiplier for finding the amount of money accumulated after N periods if one invests $1 today.
**Present Worth Factor (P/F, i, N)**:
- Multiplier for determining the present value of $1 to be received after N periods.
**Sinking Fund Factor (A/F, i, N)**:
- Determines the amount to be deposited annually](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc55a2f9-a031-4c31-a808-a3bc74814348%2Fef82c2f7-41ad-4fda-bb49-d75dd1ad4882%2F827f9f_processed.png&w=3840&q=75)
Transcribed Image Text:**Investment Analysis in Manufacturing Equipment**
**Scenario:**
Geo-Star Manufacturing Company is evaluating a new investment in a punch-press machine. The specifics of the investment are as follows:
- **Initial Cost:** $98,000
- **Annual Maintenance Cost:** $10,800
- **Additional Overhauling Cost Every Four Years:** $23,000
The equipment is expected to last indefinitely under these assumptions. The task is to determine the capitalized equivalent cost of this investment at an interest rate of 15%.
**Instructions:**
1. Click the provided icon to view interest factors for discrete compounding when \( i = 15\% \) per year.
2. Input the result in the field provided, rounding the capitalized equivalent cost to the nearest whole number.
**Capital Cost Calculation:**
- **Formula Required:**
\[ P = \frac{A}{i} \]
Where:
- \( P \) = Capitalized Equivalent Cost
- \( A \) = Annual Cost
- \( i \) = Interest Rate (15% in this case)
**Interactive Element:**
- Slide the input to the nearest whole number to find the answer.
**Interest Factors Table:**
The table provided helps in understanding the factors needed for various calculations related to compounding and payment streams. It consists of:
1. **Single Payment**:
- **Compound Amount Factor (F/P, i, N)**
- **Present Worth Factor (P/F, i, N)**
2. **Equal Payment Series**:
- **Compound Amount Factor (F/A, i, N)**
- **Sinking Fund Factor (A/F, i, N)**
- **Uniform Series Compound Amount Factor (A/P, i, N)**
- **Capital Recovery Factor (A/P, i, N)**
Here is a detailed breakdown of a few columns:
**N (Periods)**: Number of time periods.
- Ranges from 1 to 10.
**Compound Amount Factor (F/P, i, N)**:
- Multiplier for finding the amount of money accumulated after N periods if one invests $1 today.
**Present Worth Factor (P/F, i, N)**:
- Multiplier for determining the present value of $1 to be received after N periods.
**Sinking Fund Factor (A/F, i, N)**:
- Determines the amount to be deposited annually
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