a new mill costs $5000 and has an annual maintenance fee of $200. salvage value after...
Homework Answers
Initial Cost = $5000
Annual Fees =$200
Salvage Value = $1000
Life=5 years
Discount Rate=8%
PV of Salvage Value = 1000/(1+8%)^5 = 1000/1.08^5 =1000/1.4693=$680.58
PV of Annual Fees =A*(1-(1+r)^-n)/r
=200*(1-(1+8%)^-50/8%
=200*(1-1.08^-5)/0.08
=200*(1-0.6806)/0.08
=200*0.3194/0.08
=798.54
Hence Present Worth = Initial Cost+PV of annual Fee-salvage value
=5000+798.54-680.58 = $5117.96
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