A 2000-pound, counterbalanced, propane forklift can be purchased for $30,000. Due to the intended service use, the forklift’s market value drops 20% of its prior year’s value in Years 1 and 2 and then declines by 15% until Year 10 when it will have a scrap/market value of $1000. Maintenance of the forklift is $500 per year during Years 1 and 2 while the warranty is in place. In Year 3 it jumps to $750 and increases $750 per year thereafter. What is the optimal life of the forklift using i = 10%?

A 2000-pound, counterbalanced, propane forklift can be purchased for $30,000. Due to the intended service use, the forklift’s market value drops 20% of its prior year’s value in Years 1 and 2 and then declines by 15% until Year 10 when it will have a scrap/market value of $1000. Maintenance of the forklift is $500 per year during Years 1 and 2 while the warranty is in place. In Year 3 it jumps to $750 and increases $750 per year thereafter. What is the optimal life of the forklift using i = 10%?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 4E

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