A precision lathe costs $30,000 and will cost $40,000 a year to operate and maintain. If...
A precision lathe costs $30,000 and will cost $40,000 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 5 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer as a positive value.)
Homework Answers
Present value of annual payments=Annuity[1-(1+interest rate)^-time period]/rate
=$40000[1-(1.1)^-5]/0.1
=$40000*3.790786769
=$151631.4708
Total Present value of outflows
=$151631.4708+$30000
=$181631.4708
Hence equivalent annual cost =[rate*Total Present value of outflows]/[1-(1+rate)^-time period]
=[0.1*$181631.4708]/[1-(1.1)^-5]
=(18163.14708/0.379078676)
=$47913.92(Approx).
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