2 14 pts A piece of new equipment is being proposed to be in

2. (14 pts) A piece of new equipment is being proposed to be installed at a cost of $30,000 and will reduce existing expenses by $5,200 per year for five years. The company\'s MARR is 15% per year. What is the minimum salvage (market) value after five years that makes the equipment worth purchasing?

Solution

Annual Ssavings: 5200 Annuity Factor @ 15% for 5 years 3.3522 Present value of Savings 17431.44 Less; Initial Investement 30000 Difference in Two -12568.6 Therefore, present value of salvage value 12568.6 (to be recovered after 5 years) Salvage value realised at the end of 5th year 25279 ($12568.60 /0.4972)