The Pepper Company plans to invest $500,000 in new equipment and expects to save $95,000 per...
The Pepper Company plans to invest $500,000 in new equipment and expects to save $95,000 per year. The project is for 8 years and the interest rate is 6%. The equipment has a salvage value of $100,000. The machine hours per year are 2200.
Compute the annual equivalent cash flow per machine hour.
Homework Answers
Annual equivalent cash flow = -initial investment (A/P, i%, n) + 95000 + 100000(A/F, i%, n)
= -500000(A/P, 6%, 8) + 95000 + 100000(A/F, 6%, 8)
= -500000*0.16104 + 95000 + 100000*0.10104
= $24586
annual equivalent cash flow per machine hour = $24586/2200 = $11.18 per hour
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