A gas turbine purchased two years ago with a first cost of $360,000 may be used

Question

A gas turbine purchased two years ago with a first cost of $360,000 may be used for a maximum of 6 years from now. Its salvage value which decreases by 15% per year, is described by the equation S = MV (1 - 0.15V, while its maintenance and operating cost which increases by 2% from now, can also be described by this equation MO= 90000( 1 -0.02)". Thus, n is the number of years after purchase, MV is the Market Value at year n, and MO is the maintenance and operating cost. At an interest rate of 12% per year, what is the: Dollar amount of MV and MO at year 0 Economic service life (ESL) of the machine? Associated AW value for the ESL?

Explanation / Answer

A gas turbine purchased two years ago with a first cost of $360,000 may be used

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