What five equal payments occurring at r- 1, 2, 3,4, and 5, respectively, are equ

Question

What five equal payments occurring at r- 1, 2, 3,4, and 5, respectively, are equivalent if the payments of $1000, $2000, and S3000 are received at 3, 4, 5, respectively interest rate is i-12% compounded per interest period? (15 points) A grinding machine has a first cost of $24,000 with an expected useful life of 13 years. Salvage value at the end of its useful life is estimated to be $8,000. Annual maintenance expenses are $350. What is the equivalent uniform annual cost of the grinding machine? (10 points) 6.

Explanation / Answer

(5)

First, we compute present value of the stated cash flows as follows.

Present value ($) = 1,000 x PVIF(12%, 3) + 2,000 x PVIF(12%, 4) + 3,000 x PVIF(12%, 5)

= 1,000 x 0.7118** + 2,000 x 0.6355** + 3,000 x 0.5674**

= 711.80 + 1,271 + 1,702.20

= 3,685

Annual equal payment ($) = Present value / PVIFA(12%, 5) = 3,685 / 3.6048** = 1,022.25

**Using PVIF and PVIFA factor tables

NOTE: As per Chegg Answering Policy, first question has been answered.

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