A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars whilethose of equipment B are in actual dollars.Equipment A(year-zero $)Equipment B(actual $)Initial investment$9,400$11,400$4,000$0Net annual revenue$3,000Market value at end of useful life$0Useful life, years1212The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 3.70% per year over the next several years, determine the PW ofeach equipment.1. The PW of Equipment A isO A. $9,183O B. $13,208O C. $12,400O D. $19,2522. The PW of Equipment B is$15,O B. $18,744O C. $13,377O D. $26,802

Ans:- We have, Equipment A: Initial investment = $9,400 Net annual revenue = $3,000 Useful life =…

(year-zero $) (actual $) Initial investment $9,400 $11,400 $4,000 so Net annual revenue $3,000 $0 Market value at end of useful life Useful life, years 12 12 e manager uses a market interest rate of 12% per year. If inflation rate is expected to average 3.70% per year over the next se ch equipment. The PW of Equipment A is A. $9,183 B. $13,208 O C. $12,400 D. $19,252 The PW of Equipment B is A. $15,400 C10 744

(year-zero $) (actual $) Initial investment $9,400 $11,400 $4,000 so Net annual revenue $3,000 $0 Market value at end of useful life Useful life, years 12 12 e manager uses a market interest rate of 12% per year. If inflation rate is expected to average 3.70% per year over the next se ch equipment. The PW of Equipment A is A. $9,183 B. $13,208 O C. $12,400 D. $19,252 The PW of Equipment B is A. $15,400 C10 744

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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