Kiwidale Dairy is considering purchasing a new ice-cream maker. Two models, Smoothie and Creamy, are available and their information is given below (all costs and profits are in dollars): Smoothie Creamy $17500 $37000 14 years $3500 $1000 $4000 First Cost Service Life Annual Profit Annual Operating Cost Salvage Value 12 years $10500 $3050 $4200 Calculate the present worth of the smoothie machine for one life cycle (no repeated lives), if the interest rate is 10%. Round your answer to two decimal places.
Kiwidale Dairy is considering purchasing a new ice-cream maker. Two models, Smoothie and Creamy, are available and their information is given below (all costs and profits are in dollars): Smoothie Creamy $17500 $37000 14 years $3500 $1000 $4000 First Cost Service Life Annual Profit Annual Operating Cost Salvage Value 12 years $10500 $3050 $4200 Calculate the present worth of the smoothie machine for one life cycle (no repeated lives), if the interest rate is 10%. Round your answer to two decimal places.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Kiwidale Dairy is considering purchasing a new ice-cream maker. Two models, Smoothie and
Creamy, are available and their information is given below (all costs and profits are in dollars):
Smoothie
Creamy
$17500
$37000
14 years
$3500
$1000
$4000
First Cost
Service Life
Annual Profit
Annual Operating Cost
Salvage Value
12 years
$10500
$3050
$4200
Calculate the present worth of the smoothie machine for one life cycle (no repeated
lives), if the interest rate is 10%. Round your answer to two decimal places.
Expert Solution
Step 1: Define present value
Present value is the value of investment in today's dollar.
Future value is the value of investment at the end of planning horizon.
TVM is the time value of money.
TVM factor table is used to calculate the value of factors.
Present value is calculated as:-
PV = FV/(1 + i)n
Where, PV is the present value
FV is the future value.
i is the interest rate.
n is the time period.
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