Question 4 Part B: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs Amount $175,000 $10,000 $80,000 Year incurred Year O Per year, forever First in year 5, then every 5 years forever Question 4 Part B: What is the equation used to find portion of the cost due to the Recurring Cost (major maintenance costs)? P [80,000(A/F, 6%, 5)]/0.06 P = [80,000(F/A, 6%, 5)]/0.06 OP=80,000(F/A, 6%, 4)
Question 4 Part B: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs Amount $175,000 $10,000 $80,000 Year incurred Year O Per year, forever First in year 5, then every 5 years forever Question 4 Part B: What is the equation used to find portion of the cost due to the Recurring Cost (major maintenance costs)? P [80,000(A/F, 6%, 5)]/0.06 P = [80,000(F/A, 6%, 5)]/0.06 OP=80,000(F/A, 6%, 4)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Question 4 Part B: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will
always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and
maintain the perpetual project? Interest rate is 6%.
Costs
Initial Cost
Annual Operating & Maintenance Costs
Major Maintenance Costs
Amount
$175,000
$10,000
$80,000
Year incurred
Year O
Per year, forever
First in year 5, then every 5 years forever
Question 4 Part B: What is the equation used to find portion of the cost due to the Recurring Cost (major maintenance costs)?
P [80,000(A/F, 6%, 5)]/0.06
P = [80,000(F/A, 6%, 5)]/0.06
OP=80,000(F/A, 6%, 4)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc77db10-411b-4277-b72e-b2214a4cc0f7%2Ffcd5e78b-af77-499a-8726-d0dba6a54b68%2F5n9yx4j_processed.png&w=3840&q=75)
Transcribed Image Text:Question 4 Part B: You have decided to invest in a project to build and run a production line for a friend. Your friend has specified that the production line needs to last forever, and will
always be operational. The associated costs for the project are shown in the table below. How much should you charge your friend now for the production line in order to build and
maintain the perpetual project? Interest rate is 6%.
Costs
Initial Cost
Annual Operating & Maintenance Costs
Major Maintenance Costs
Amount
$175,000
$10,000
$80,000
Year incurred
Year O
Per year, forever
First in year 5, then every 5 years forever
Question 4 Part B: What is the equation used to find portion of the cost due to the Recurring Cost (major maintenance costs)?
P [80,000(A/F, 6%, 5)]/0.06
P = [80,000(F/A, 6%, 5)]/0.06
OP=80,000(F/A, 6%, 4)
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