Exactly 8 years ago, a company purchased equipment for $ 115,000 and sold that s

Question

Exactly 8 years ago, a company purchased equipment for $ 115,000 and sold that same equipment today for $45,000. Operating and maintenance costs for the equipment averaged $ 10,500 per year. A complete overhaul at the end of year 4 cost an extra $3600. Calculate the annual cost of the equipment at 8% per year interest.

The City of Highpoint, NC, decided to fund a certain social program. The first cost is $200,000 now, and an update budget of $ 100,000 every 7 years forever is requested. Determine the perpetual equivalent annual cost at an interest rate of 10% per year.

Explanation / Answer

1.  PW = -115000 + 45000*[P/F, 8%, 8] - 3600*[P/F, 8%, 4]

= -115000 + 24312 - 2646

= -93334

Annual equivalent for the above calculated costs = -93334*[A/P, 8%, 8] = -16,241

Annual cost = -10,500 -16,241 = -$26,741

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