A machine at a cost of $5000 was purchased 3 years ago. It can be sold now for $

Question

A machine at a cost of $5000 was purchased 3 years ago. It can be sold now for $3000. If the machine is kept, the annual operating and maintenance costs will be $1500. If it is kept and operated for the next five years, determine the amount at time 0(now) equivalent to the cost of owning and operating the machine for the next five year period. It is anticipated that the machine can be sold for $1000 at the end of the five year period. Use an interest rate of 10%. (show work) a)8065 b)6550 c)9522 d)5002

Explanation / Answer

P = $3,000 Operating and maintenance costs = $1,500 n = 5 yrs ,Salvage value = $1,000 Interest rate = 10% PV of costs = 3000 + 1500 (P/A, 10%, 5) - 1000(P/F, 10%, 5) = 3000 + 1500 (3.791) -1000(0.6209) = $8,065 ans:A

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