(2.5 points) An electronics firm invested $60,000 in a precision inspection devi
ID: 1120413 • Letter: #
Question
(2.5 points) An electronics firm invested $60,000 in a precision inspection device. It cost $4000 to operate and maintain in the first year and $3000 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
Find the annual equvalent from the present cost
PV = 60000 + 4000(P/F, 5%, 1) + 3000(P/F, 5%, 2) + 3000(P/F, 5%, 3) + (3000 - 60000)(P/F, 5%, 4)
= 60000 + 4000*0.95238 + 3000*0.90703 + 3000*0.86384 - 57000*0.82270 = $22228.23
Annual equivalent cost = $22228.23(A/P, 5%, 4) = 22228.23*0.28201 = $6269
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