Homework Answers
Answer: -
The installation cost equal to the present value of annual savings plus the investment at the end of 12 years of 30000 (since life is doubled) can be justified by the managers.
Equipment installation cost = PV of annual savings + PV of equipment investment
= 400/ (1.07) + 400/1.07^2 + ++++ + 400/ (1.07^24) + 30000/(1.07^12)
= 17908.129
Any amount less than this can be justified.
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