15. A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The effective annual interest rate is 10%. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to save the company $4500 per year? (A) $2300 (B) $2800 (C) $3200 (D) $3500

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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15. A company purchases a piece of equipment for
$15,000. After nine years, the salvage value is $900.
The annual insurance cost is 5% of the purchase price,
the electricity cost is $600/yr, and the maintenance and
replacement parts cost is $120/yr. The effective annual
interest rate is 10%. Neglecting taxes, what is most
nearly the present worth of the equipment if it is
expected to save the company $4500 per year?
(A) $2300
(B) $2800
(C) $3200
(D) $3500
Transcribed Image Text:15. A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The effective annual interest rate is 10%. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to save the company $4500 per year? (A) $2300 (B) $2800 (C) $3200 (D) $3500
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