Question

Answer the following questions using Microsoft Excel formulas Q1. New digital scanning graphics equipment is expected to cost $20,000, to be used for three years, and to have an annual operating cost of $8,000. Determine the Annual Worth values for one and two life cycles of the equipment at-22% per year. Look at the cash flow diagram below. 0 6 $8,000 $8,000 $20,000 20,000 Life Cycle1 Life Cycle 2

Answer 1

Given information:

Life cycle 1: Asset cost = $20,000

N = 3

I = 22%

Operating cost = $8,000

Then, Annual Worth = asset cost (A/P,N,I) - operating cost

= -$20,000 $[I(I+1)^N]/[(1+I)^N]$ - $8,000

= -$20,000 [] - $8,000

0.22(0.22 +1)81/10.22)

= -$20,000 [0.48865]-$8,000

= -$17,793.16

Life cycle 2 information: Asset cost = $20,000

N = 6

I = 22%

Operating costs = $8,000

Then,

Annual Worth = Asset cost (A/P,22%,6) - [Asset cost * (P/F,22%,3) * (A/P,22%,6)] - Operating cost

= -$20,000[ ​
10.22(0.22+1 )6И(1 + 0.22 )6
]​​- [ $20,000 *
1/10.22)
*
10.22(0.22+1 )6И(1 + 0.22 )6
​​​​​] - $8,000

= -$20,000 (0.31576) - [$20,000*(0.55070)*(0.31576)]-$8,000

= -$17, 793.16