Four years ago, Jack consultants purchased a piece of equipment for $90,000. The

Question

Four years ago, Jack consultants purchased a piece of equipment for $90,000. The equipment was projected to have a service life of 7 years, a salvage value of $10,000, and an annual operating cost of $24,000. The equipment will need a $25,000 upgrade so that it can be used for three more years. The annual operating costs are projected to be $28,000, and it will have a salvage value of $15,000 after year 3. If replaced now, the equipment can be sold for $12,000. Calculate its annual worth at an interest rate of 8%.

a)($18,263)

b)($46,978)

c)($18,263)

d)($37,737)

Explanation / Answer

Find the annual worth of the equipment

= -(12000 + 25000)(A/P, 8%, 3) - 28000 + 15000(A/F, 8%, 3)

= -37000*0.3880 - 28000 + 15000*0.3080

= 37736

Correct option is D

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