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A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000...

A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)
o $72,275
o $114,487
o $135,928
o $132,275

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Answer #1

At the interest rate of 12% per year, the total equivalent cost (present value) of the given cash flow = $132,276

Option 4 is correct

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