Solve Problem # 3 please and show the laws used. Thanks in advance. 3. You are c

Question

Solve Problem # 3 please and show the laws used. Thanks in advance.

3. You are considering purchasing a dump truck. The truck will cost $45,000 and have an operating and maintenance cost that starts at $15,000 at year one and increases by $2,000 each year. The salvage value at the end of five years is S9.000 and the interest rate is 12% per year, what is the Capital recovery for this case? rest Compute the Project Balance for the following projects and determine the best alternative of both at an inte rate of 12% per year? . 400 300 150 Le

Explanation / Answer

(3)

First, we need to compute the present worth (PW) of the cash flows, as shown below.

Note that in year 5, operating cost decrease by $9,000 (salvage value).

So, Capital recovery (CR) is found as follows:

CR ($) = PW x A/P(12%, 5)**

= 1,16,973 x 0.28

= 32,752

**A/P(r%, N) is capital recovery factor.

Year Cost ($) Discount factor @12% Discounted cost ($) (A) (B) (A) x (B) 0 45,000 1.0000 45,000 1 15,000 0.8929 13,393 2 17,000 0.7972 13,552 3 19,000 0.7118 13,524 4 21,000 0.6355 13,346 5 32,000 0.5674 18,158 PW ($) = 1,16,973

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