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4. The total manufacturing cost of a certain item is expected to decrease because of increased productivity, as shown in the
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Answer #1

First, PW of costs is computed as follows.

PW = 200 x P/F(8%, 1) + 195 x P/F(8%, 2) + 190 x P/F(8%, 3) + 185 x P/F(8%, 4) + 180 x P/F(8%, 5) + 175 x P/F(8%, 6) + 170 x P/F(8%, 7) + 165 x P/F(8%, 8)

= 200 x 0.9259** + 195 x 0.8573** + 190 x 0.7938** + 185 x 0.7350** + 180 x 0.6806** + 175 x 0.6302** + 170 x 0.5835** + 165 x 0.5403**

= 185.18 + 167.17 + 150.82 + 135.98 + 122.51 + 110.29 + 99.20 + 89.15

= 1060.3

Equivalent annual cost = PW / P/A(8%, 8) = 1060.3 / 5.7466** = 184.51

**From P/A and P/F factor tables

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