You work for Midstates Solar Power where a Semi2 machine has an initial cost of $80,000 and an operating cost of $21,000 per year until year 5, after which it would have a salvage value of $13,000. The Auto1 machine has an initial cost of $62,000 and an operating cost of $21,000 in year 1, increasing at 8% per year until year 5, after which time it would have a salvage value of $2,000. Use an interest rate of 10% per year to determine: (a) Which of the two machines will have the least total annual cost.
You work for Midstates Solar Power where a Semi2 machine has an initial cost of $80,000 and an operating cost of $21,000 per year until year 5, after which it would have a salvage value of $13,000. The Auto1 machine has an initial cost of $62,000 and an operating cost of $21,000 in year 1, increasing at 8% per year until year 5, after which time it would have a salvage value of $2,000. Use an interest rate of 10% per year to determine: (a) Which of the two machines will have the least total annual cost.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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You work for Midstates Solar Power where a Semi2 machine has an initial cost of $80,000 and an operating cost of $21,000 per year until year 5, after which it would have a salvage value of $13,000. The Auto1 machine has an initial cost of $62,000 and an operating cost of $21,000 in year 1, increasing at 8% per year until year 5, after which time it would have a salvage value of $2,000. Use an interest rate of 10% per year to determine:
(a) Which of the two machines will have the least total annual cost.
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