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You are considering investing $64,000 in new equipment. You estimate that the net cash flows will be $20,000 during the first year, but will increase by $2,200 per year the next year and each year thereafter. The equipment is estimated to have a 8-year service life and a net salvage value of $7,000 at that time. Assume an interest rate

You are considering investing $64,000 in new equipment. You estimate that the net cash flows will be $20,000 during the first year, but will increase by $2,200 per year the next year and each year thereafter. The equipment is estimated to have a 8-year service life and a net salvage value of $7,000 at that time. Assume an interest rate

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You are considering investing $64,000 in new equipment. You estimate that the net cash flows will be $20,000 during the first year, but will increase by $2,200 per year the next year and each year thereafter. The equipment is estimated to have a 8-year service life and a net salvage value of $7,000 at that time. Assume an interest rate of 15%. a. calculate annual capital cost. b. determine the equivalent annual earnings. c. is this a wise investment?
Transcribed Image Text:You are considering investing $64,000 in new equipment. You estimate that the net cash flows will be $20,000 during the first year, but will increase by $2,200 per year the next year and each year thereafter. The equipment is estimated to have a 8-year service life and a net salvage value of $7,000 at that time. Assume an interest rate of 15%. a. calculate annual capital cost. b. determine the equivalent annual earnings. c. is this a wise investment?
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