The following information has been established for purchasing and operating a windmill that will be used to generate electricity. Purchase Cost = $850,000 Annual Maintenance Cost = $30,000 Overhaul Cost (Required in Years 25 and 50) = $250,000 Salvage Value = $125,000 Useful LIfe = 75 years (a) Using the interest rate 9% or 0.09, find the equivalent uniform annual cost associated with purchasing and operating this windmill over its useful life.
The following information has been established for purchasing and operating a windmill that will be used to generate electricity.
Purchase Cost = $850,000
Annual Maintenance Cost = $30,000
Overhaul Cost (Required in Years 25 and 50) = $250,000
Salvage Value = $125,000
Useful LIfe = 75 years
(a) Using the interest rate 9% or 0.09, find the equivalent uniform annual cost associated with purchasing and operating this windmill over its useful life.
(b) Suppose a $1,200,000 federal grant could be used to pay for purchasing and operating this windmill indefinitely (i.e., replacing it as needed into perpetuity). Would this grant be sufficient to cover all initial and future costs associated with the windmill? Show or explain why or why not.
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