Question 5 10 points Save Answer Acompany puchase a piece of

Question 5 10 points Save Answer Acompany puchase a piece of marutachrng eoomer for rereal purposes The expected incone B 52 900thetr the price is S22 000 and there is a savago value of $1000 wnet the equvilent anno\" wom eres wweshnerr, year andrcreases $120 overwe\" thereafter busef.dei550year, Expenses an otrated to be $2 500 arnaalyif meet ntheis?% EAW2,0 d EAW-1,186 00

Solution

Initial Cost = $ 22,000, Annual Cost = $ 2500, Annual Income = $ 2900

Net Income = Annual Income - Annual Cost = 2900 - 2500 = $ 400

Income increases by $120 every year starting from 2 nd year

Useful Life = 10 years

First we will calculate the Present Worth of purchase at a discounting rate of 7%

Equivalent Annual Worth, EAW = PW(A/P, 0.07,10years)

                                                        = -15356.35 * 0.1424

                                                        = -$ 2186.74

EAW = - $ 2186

N	Cash Flow	Discount Factor
0	-22000	-22000
1	400	373.83
2	520	454.19
3	640	522.43
4	760	579.80
5	880	627.43
6	1000	666.34
7	1120	697.48
8	1240	721.69
9	1360	739.75
10	2480	1260.71
Present Worth	-15356.35