You purchase a special equipment that reduces defects by $15,000 per year on an item. This item is sold on contract for the next 5 years. After the contract expires, the special equipment will save approximately $5,000 per year for five years. You assume that the machine has no market value at the end of 10 years. How much can you afford to pay for this equipment now if you require a 12% annual return on your investment?
You purchase a special equipment that reduces defects by $15,000 per year on an item. This item is sold on contract for the next 5 years. After the contract expires, the special equipment will save approximately $5,000 per year for five years. You assume that the machine has no market value at the end of 10 years. How much can you afford to pay for this equipment now if you require a 12% annual return on your investment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.
You purchase a special equipment that reduces defects by $15,000 per year on an item. This item is sold on contract for the next 5 years. After the contract expires, the special equipment will save approximately $5,000 per year for five years. You assume that the machine has no market value at the end of 10 years. How much can you afford to pay for this equipment now if you require a 12% annual return on your investment?
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