GeoStar Manufacturing Company is considering a new investmen

Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $71,000 and has an annual maintenance cost of $11,500. There is also an additional overhauling cost of $21,000 for the equipment once every four years. Assuming that this equipment will last infinitely under these conditions, what is the capitalized equivalent cost of this investment at an interest rate of 9%? Click the icon to view the interest factors for discrete compounding when i-9% per year. The capitalized equivalent cost of this investment is S thousand. (Round to the nearest whole number.)

Solution

FV = 21,000, PV = 0, N = 4, rate = 9%

use PMT function in excel

annualized cost of overhauling = 4,592.04

capitalized equivalent cost = 71,000 + (4592.04 + 11,500)/0.09

capitalized equivalent cost = 249,800