3 # Economic Analysis of New Equipment Investment## Problem StatementYou are considering investing $84,000 in new equipment. You estimate that the net cash flows will be $17,000 during the first year, but will increase by $500 per year the next year and each year thereafter. The equipment is estimated to have a 9-year service life and a net salvage value of $12,000 at that time. Assume an interest rate of 6%.### Objectives:(a) Determine the annual capital cost (ownership cost) for the equipment.(b) Determine the equivalent annual savings (revenues).### Factor and Value Table:Below is the provided table that includes various factors used to calculate present worth, future value, sinking fund factor, and others. The values are given for an interest rate of 6% over periods from 1 to 10 years.| $ N $ | \text{Single Payment} Compound Amount Factor $ (F/P, i, N) $ | \text{Present Worth Factor} $ (P/F, i, N) $ | \text{Compound Amount Factor} $ (F/A, i, N) $ | \text{Equal Payment Series} Sinking Fund Factor $ (A/F, i, N) $ | \text{Present Worth Factor} $ (P/A, i, N) $ | \text{Capital Recovery Factor} $ (A/P, i, N) $ | \text{Gradient Series} Compound Amount Factor $ (F/A, G, i, N) $ | \text{Gradient Uniform Payment Series} $ (A/G, i, N) $ | \text{Gradient Present Worth} $ (P/G, i, N) $ ||---|---|---|---|---|---|---|---|---|---|| 1 | 1.0600 | 0.9434 | 1.0000 | 1.0000 | 0.9434 | 1.0600 | 0.0000 | 0.0000 | 0.0000 || 2 | 1.1236 | 0.8900 | 2.0600 | 0.4854 | 1.8334 | 0.5480 | 1.0600 | 0.4854 | 0.8900 ||

The measure that depicts the current stream of income flows being discounted at a specified rate of…

You are considering investing $84,000 in new equipment. You estimate that the net cash flows will be $17,000 during the first year, but will increase by $500 per year the next year and each year thereafter. The equipment is estimated to have a -year service life and a net salvage value of $12,000 at that time. Assume an interest rate of 8%. (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues).

You are considering investing $84,000 in new equipment. You estimate that the net cash flows will be $17,000 during the first year, but will increase by $500 per year the next year and each year thereafter. The equipment is estimated to have a -year service life and a net salvage value of $12,000 at that time. Assume an interest rate of 8%. (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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