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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Transcribed Image Text:A farmer is evaluating the purchase of a new tractor vs. a used tractor. The new tractor
has an initial cost of $75,000, a useful life of 18 years, maintenance cost of $2100 per
year, salvage value of $20,000. The used tractor costs $25,000 initially, a useful life of
nine years, salvage value of $8000, and maintenance cost of $3000 per year. Evaluate
the choice of alternatives using both the Annual Worth and Present Worth approaches.
Use an interest rate of 8% per year.
Expert Solution
Step 1
Present Worth is the present value of all costs incurred over the useful period of life.
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