Please answer 16 and 17 in detailed answer roblems 15 through 17 are based on th

Question

Please answer 16 and 17 in detailed answer

roblems 15 through 17 are based on the following information: New production equipment is considered. Its maintenance cost for the first yea maintenance cost will increase by 5% every year. The eguipment useful life is10 ye is $10,000, and then the ars. The interest rate 5%. Answer the following three questions: 50 15. The cash flow representing the equipment maintenance cost in this case is: a. Uniform Gradient b. Arithmetic Gradient c. Compound Gradient dGeometric Gradient -16. The maintenance cost for year 8 is: a. 13,400 > 14,000 c. 14,071 d. 14,775 7. The present worth of the equipment maintenance cost is: a. 83,405 b. 95,238 c. 95,832 d. 83,504

Explanation / Answer

16. Option c is correct

Maintenance cost (year 8) = 10000 x 1.05(8 - 1) = 14071 ( = 10000 x (1 + inflation rate)n - 1)

17.

PW = 10000/(1 + 5%) + 10000 x 1.051/(1 + 5%)2 + ..... + 10000 x 1.059/(1 + 5%)10

PW = 95238.1

Option b is correct

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