(2.5 points) An electronics firm invested S60,000 in a precision inspection devi

Question

(2.5 points) An electronics firm invested S60,000 in a precision inspection device. It cost $4000 to operate and maintain in the first year and S3000 in each of the subsequent years. At the end of 4 years, the firm changed their inspection procedure, eliminating the need for the device. The purchasing agent was very fortunate in being able to sell the inspection device for $60,000, the original price. The plant manager asks you to compute the equivalent uniform annual cost of the device during the 4 years it was used. Assume interest at 5% per year.

Explanation / Answer

Present worth = 60,000 + 4,000(P/F,5%, 1) + 3,000(P/F,5%, 2) + 3,000(P/F,5%, 3) + 3,000(P/F,5%, 4) - 60,000(P/F, 5%, 4)

= 60,000 + 4,000(0.9524) + 3,000(0.9070) + 3,000(0.8638) + 3,000(0.8227) - 60,000(0.7835)

= 60,000 + 3809.6 + 2721 + 2591.4 + 2468.1 - 47,010

= 24,580.1

EUAC = 24,580.1(A/P, 5%, 4)

   = 24,580.1(0.2820)

   = $6,931.59

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