Ferro electronics wants to replace its ageing production line in five years with

Question

Ferro electronics wants to replace its ageing production line in five years with new equipment. Currently, the equipment has operating costs which are expected to be $5,000 in year 1, $6,00 in year 2, with costs increasing by $1,000 per year through year five. At the end of year five, the equipment will have a salvage value of $30, 000. The new equipment is expected to cost $150, 000 and the company uses an interest rate of 16% per year compounded quarterly on its investments. The operating cost in year four will be: a. $10, 000 b. $7,000 c. $9,000 d. $8,000

Explanation / Answer

option D is right answer

the operating cost in year 4 is $8000

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