1 A company is planning to buy a machine for 30000 and use i

1. A company is planning to buy a machine for $30,000 and use it for 6 years with an annual operation cost of $900. Without any major repairs, the machine should have an end-of-use resale price of $26,000. The equivalent annual cost of using this machine if the company\'s acceptable interest rate is six percent is closest to:

2 . With an annual interest rate of 6 percent, the worth on 30 June 2020 of a series of annual payments of $317.70 made on 30 June from 2025 through 2030 is closest to:

Solution

Req 1. Annual operation cost -900 Annuity f actor for 6 years at 6% 4.9173 Present value of Annual cost -4425.57 Add: Initial cost -30000 Total Present value of outflows -34425.57 Less: Present value of Salvage 18330 (26000*0.705) Present worth -16095.57 Divide: Annnuity factor 4.9173 Equivalent annual cost -3273.254 Req 2: Year Cash flows PVf @6% Present value 2020 0 1 0 2021 0 0.9434 0 2022 0 0.89 0 2023 0 0.83962 0 2024 0 0.79209 0 2025 317.7 0.74726 237.40392 2026 317.7 0.70496 223.96596 2027 317.7 0.66506 211.28864 2028 317.7 0.62741 199.32891 2029 317.7 0.5919 188.04614 2030 317.7 0.55839 177.40202 Present value on June 30 2020 1,237