Question

1. Consider a palletizer at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of 30 years. Assume an interest rate of 8 percent. What is the annual equivalent cost of the investment if the planning horizon is 30 years? a. $29,760 c. $31,980 b. $30,600 d. $35,130 5 pointe-cha-

Answer 1

ANSWER:

I = 8% AND N = 30

Annual equivalent cost = first cost(a/p,i,n) + o and m costs + salvage value(a/f,i,n)

aec = -150,000(a/p,8%,30) - 17,500 + 25,000(a/f,8%,30)

aec = -150,000 * 0.0888 - 17,500 + 25,000 * 0.00883

aec = -13,320 - 17,500 + 208.25

aec = -30,603.43

so the correct answer is option b.