A special-purpose machine is to be purchased at a cost of $14,000. The expected

Question

A special-purpose machine is to be purchased at a cost of $14,000. The expected annual operating and maintenance each year of the machine's service are as follows. Year of service 1; 08M costs $2400; Market value $11,100 Years of service 2: O&M; costs $4000; Market value $7,700 Years of service 3: O&M; costs $6000; Market value $5,500 Years of service 4; 0&M; costs $7200; Market value $4,200 Years of service 5;O8M costs $8700:; Market value $0 if the interest rate is 13%, what is the economic service life for this machine? Enter your answer as an integer between 1 and 5 . cost and the salvage (or

Explanation / Answer

Since the net annual equivilant cost is least in year 2, economic service life of of machine is 2 years

14000 OM P V Factor @13% Present value Cummulative Value First Cost & maintenance cost less salvage value A/P 13% Annual Equivilant cost Salvage Net Cost Year 1 2400 0.884955752 2123.89 2123.89 16123.89 1.12 18058.76 11100 6958.76 Year 2 4000 0.783146683 3132.59 5256.48 19256.48 0.5917 11394.06 7700 3694.06 Year 3 6000 0.693050162 4158.30 9414.78 23414.78 0.4163 9747.57 5500 4247.57 Year 4 7200 0.613318728 4415.89 13830.68 27830.68 0.3292 9161.86 4200 4961.86 Year 5 8700 0.542759936 4722.01 18552.69 32552.69 0.2774 9030.12 0 9030.12

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