3. (25 points) Badger Diggers wants to purchase a new trencher. They expect to i
ID: 2651116 • Letter: 3
Question
3. (25 points) Badger Diggers wants to purchase a new trencher.
They expect to incur the following purchase, maintenance, and inspection costs.
What are the equivalent annual costs of the trencher over the next 8 years,
that they would need to earn in revenue to pay for the machine?
Use an interest rate of 12% per year. Solve in the 2 steps below.
Interest:
12.00%
Year
Total costs
0
$ 50,000.00
1
$ 5,000.00
2
$ 5,000.00
3
$ 5,000.00
4
$ 20,000.00
5
$ 5,000.00
6
$ 10,000.00
7
$ 15,000.00
8
$ 20,000.00
Present cost
$
Fill in additional data here, as required
Annual cost
3. (25 points) Badger Diggers wants to purchase a new trencher.
They expect to incur the following purchase, maintenance, and inspection costs.
What are the equivalent annual costs of the trencher over the next 8 years,
that they would need to earn in revenue to pay for the machine?
Use an interest rate of 12% per year. Solve in the 2 steps below.
Interest:
12.00%
Year
Total costs
0
$ 50,000.00
1
$ 5,000.00
2
$ 5,000.00
3
$ 5,000.00
4
$ 20,000.00
5
$ 5,000.00
6
$ 10,000.00
7
$ 15,000.00
8
$ 20,000.00
Present cost
$
Fill in additional data here, as required
Annual cost
Explanation / Answer
1. Total Cost from 0-8 years = $135,000
PVAF(12%, 0-8 years) = 5.9676
2. Equivalent annual costs = Total Cost 0-8 years / PVAF(12%, 0-8 years) = 135,000 / 5.9676 = $22,622.01
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