Question

ANSWER THE FOLLOWING QUESTIONS:-

It is estimated that a certain piece of equipment can save $22,000 per year in labor (a) and materials costs. The equipment has an expected life of five years and no market value. If the company must earn a 15% annual return on such investments, estimate how much money could be justified now for the purchase of this piece of equipment? Draw a cash-flow diagram from the company's viewpoint 73,747 $2.31 per gallon. In 1993, the average The average price of gasoline in 2005 was price was $1.07. Estimate what was the average annual rate of increase in the price of gasoline over this 12-year period? 662 (b)

Answer 1

ezuipment 1abour and Can Save CaIt is given that material cos s it t t h e fer year Pev ot eguipment piece Corpany buys re F Since Ehis cevtain benetit Lor savibg) Ehe is it will point opwards in the compny faw diagvara cash five years is egipment The i's that expipment aftex May ket Vale of 5years is zero. calculate how much to We have should inves t kuedo that it Furchasing should Lhe in Legvipment annual 59 eayn Yetuvn Let the eguiprest Cash Flow Diagrab) the invest in pir chesing Company 22,000 each The corpany invest and saves $22 purcharing the egpipmert labour and material 1 h Cost

it is given 1S1 retuvn anhually Since the only venetit labour and Now that should eavh compaby the compary is getting is in should be eaval to matern) I5 Yctovn of this costy the cempany Co we know t hat P A wheve Wor th PResent annual wort (here 157.) A Amuty Intevest vate OY (heve Years in above euatis P.A i and Cito16)5-1 Putting valves of 22,0 Xe 22,000x 3. 35215S 73747. 41 73,747 Hence the company should fuechasing the eguipnent S73,747 in invest

Sunil Da Paga 2.31 in year 200 5 af garatine of gaso lih e In yea v that Avevage price Avevage puice 1-97 P 1993- know Sinee We F-PCitish F Future Wovth P Present Worth i Intevest Rate hTme periad wheve n years otting gjention above values jh the .1/ 2.31: 1.07x (1+ 2 2.31 ).07 2:)5387 o0th sides en (1t1) 1n (2 IS88) (1+i)2 Taking batural log O.7695S lr (1ti 7 0 76955 /2 0.66412 9 0.064129 1+)-e I.O0229 t066229-1 LE0&2229 Thtevest yate