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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
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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