
(a)
Calculate the
(a)

Explanation of Solution
Investment is (I) is $650,000. Equivalent annual revenue (A) is $105,000. Salvage value (SV) is 50,000. Time period (n) is 5.
Rate of return (i) can be calculated as follows:
The normal revenue is $575,000
When the rate of return as -3% is substituted, the calculated value is less than the investment and thus, the rate of return is reduced to 3.742%.
The calculated value is nearly equal to investment with rate of return 3.742%. Thus, it is confirmed that the rate of return is 3.742%.
(b)
Calculate the equivalent annual value.
(b)

Explanation of Solution
Investment is (I) is $650,000. Salvage value (SV) is 50,000. Time period (n) is 5. Rate of return (i) is 15%.
Equivalent annual value (A) can be calculated as follows:
The equivalent annual value is $186,489.61.
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Chapter 7 Solutions
Engineering Economy
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