Question 4 Part C: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Initial Cost Annual Operating & Maintenance Costs Year incurred Year O Major Maintenance Costs Amount $175,000 $10,000 $80,000 Question 4 Part C: What is the equation used to find the portion of the cost due to the Annual Cost (annual operating and maintenance costs)? Per year, forever First in year 5, then every 5 years forever P = 10,000/0.06 OP=10,000/0.06 +80,000(P/A, 0.06, 5) OP=10,000(P/F, 0.06, 1) + 80,000(P/A, 0.06, 10)
Question 4 Part C: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Initial Cost Annual Operating & Maintenance Costs Year incurred Year O Major Maintenance Costs Amount $175,000 $10,000 $80,000 Question 4 Part C: What is the equation used to find the portion of the cost due to the Annual Cost (annual operating and maintenance costs)? Per year, forever First in year 5, then every 5 years forever P = 10,000/0.06 OP=10,000/0.06 +80,000(P/A, 0.06, 5) OP=10,000(P/F, 0.06, 1) + 80,000(P/A, 0.06, 10)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Question 4 Part C: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will
always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and
maintain the perpetual project? Interest rate is 6%.
Costs
Initial Cost
Annual Operating & Maintenance Costs
Year incurred
Year O
Major Maintenance Costs
Amount
$175,000
$10,000
$80,000
Question 4 Part C: What is the equation used to find the portion of the cost due to the Annual Cost (annual operating and maintenance costs)?
Per year, forever
First in year 5, then every 5 years forever
P = 10,000/0.06
OP=10,000/0.06 +80,000(P/A, 0.06, 5)
OP=10,000(P/F, 0.06, 1) + 80,000(P/A, 0.06, 10)
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