You and your partner have become very interested in cross-country motorcycle racing and wish to purchase entry-level equipment. You have identified two alternative sets of equipment and gear. Package K has a first cost of $160,000, an operating cost of $7000 per quarter, and a salvage value of $40,000 after its 2-year life. Package L has a first cost of $210,000 with a lower operating cost of $5000 per quarter, and an estimated $26,000 salvage value after its 4-year life. Which package offers the lower present worth analysis at an interest rate of 8% per year, compounded quarterly?

You and your partner have become very interested in cross-country motorcycle racing and wish to purchase entry-level equipment. You have identified two alternative sets of equipment and gear. Package K has a first cost of $160,000, an operating cost of $7000 per quarter, and a salvage value of $40,000 after its 2-year life. Package L has a first cost of $210,000 with a lower operating cost of $5000 per quarter, and an estimated $26,000 salvage value after its 4-year life. Which package offers the lower present worth analysis at an interest rate of 8% per year, compounded quarterly?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5.24
You and your partner have become very interested in cross-country motorcycle racing and
wish to purchase entry-level equipment. You have identified two alternative sets of equipment
and gear. Package K has a first cost of $160,000, an operating cost of $7000 per quarter, and a
salvage value of $40,000 after its 2-year life. Package L has a first cost of $210,000 with a lower
operating cost of $5000 per quarter, and an estimated $26,000 salvage value after its 4-year
life. Which package offers the lower present worth analysis at an interest rate of 8% per year,
compounded quarterly?

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