3. Listed below are two solutions for a service issue. Workout the present costs

Question

3. Listed below are two solutions for a service issue. Workout the present costs for option 1 for a 6 year period of time. Usea 10% per year interest rate.                                  Option1                           Option2 FirstCost                     14000                              25000 Maintainence                 1500peryear                  1000per year Salvage                          1000                               1200 Life                                3Years                             6Years 3. Listed below are two solutions for a service issue. Workout the present costs for option 1 for a 6 year period of time. Usea 10% per year interest rate.                                  Option1                           Option2 FirstCost                     14000                              25000 Maintainence                 1500peryear                  1000per year Salvage                          1000                               1200 Life                                3Years                             6Years

Explanation / Answer

Option 1

1,500 per year

3 years

Option 1

First Cost 14,000 Maintainence

1,500 per year

Salvage Value 1,000 Life

3 years

Calculating Present Cost at10% interest rate for a 6 year life period: Present Cost = 14,000 + 1,500 (PVoAF10%, 6 ) -1,000 (PVF 10%,6) Present Cost = [14,000 + (1,500 *4.3553) - (1,000 * 0.5645)] Present Cost = [14,000 + 6,532.95 -564.50] Present Cost = 19,967.45

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