A laboratory might buy a new piece of equipment for $26,785. The equipment's useful life is 4 years, and its salvage value is $5000. The company will save $9000 per year for 4 years if it buys the equipment. Maintenance costs in year 1 will be zero, but will increase each year starting in year 2 by $500 per year (the first year is covered by a warranty). Determine the Equivalent Annual Worth if the company's cost of money is 10%.

A laboratory might buy a new piece of equipment for $26,785. The equipment's useful life is 4 years, and its salvage value is $5000. The company will save $9000 per year for 4 years if it buys the equipment. Maintenance costs in year 1 will be zero, but will increase each year starting in year 2 by $500 per year (the first year is covered by a warranty). Determine the Equivalent Annual Worth if the company's cost of money is 10%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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