Homework Answers
c.$2120.
first let us know the present value of annual maintenance cost.
=>$550 * PV of annuity factor for 15 years @4%.
PV of annuity factor = [1-(1+r)^(-n)]/r
here,
r= 4%=>0.04.
n=15.
PV of annuity factor = [1- (1.04)^(-15)]/0.04
=>0.4447355/0.04
=>11.1183875.
now,
present value of annual maintenance costs =550*11.1183875
=>6,115.11.
now present value of salvage value
=>$4500*1 / (1.04)^15
=>2498.69.
now,
present value of pump = 20,000+6115.11-2498.69
=>26,616.42.
equivalent uniform annual cost = $26,616.42 /PV of annuity factor for 15 years @4%.....(as calculated above)
=>26,616.42/11.1183875
=>$2,124.
nearest to 2120.
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