You are about to buy a piece of equipment (machine Alpha) for a project. The initial cost is $500,000 and the annual maintenance costs is $15,000. Another company offers you a second option (Machine Beta) for which the annual maintenance cost is $20,000. What is the maximum price (the initial cost) you would be willing to pay for the second option? Both machines have the same useful life of 11 years and the difference between their performances is negligible. Assume an annual interest rate of 4%.

You are about to buy a piece of equipment (machine Alpha) for a project. The initial cost is $500,000 and the annual maintenance costs is $15,000. Another company offers you a second option (Machine Beta) for which the annual maintenance cost is $20,000. What is the maximum price (the initial cost) you would be willing to pay for the second option? Both machines have the same useful life of 11 years and the difference between their performances is negligible. Assume an annual interest rate of 4%.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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