A precision lathe costs $27,000 and will cost $37,000 a year to operate and main

Question

A precision lathe costs $27,000 and will cost $37,000 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 4 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer as a positive value.)

A precision lathe costs $27,000 and will cost $37,000 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 4 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer as a positive value.)

Explanation / Answer

Year Costs PVF@10% Present value 0 $       27,000 1.000 $         27,000 1 $       37,000 0.909 $         33,636 2 $       37,000 0.826 $         30,579 3 $       37,000 0.751 $         27,799 4 $       37,000 0.683 $         25,271 Present value of cost $       144,285 PVAF(10%,4)                3.170 Equivalent annual costs $         45,516

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