A company is considering investing $17,500 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be $1,500. Maintenance costs for the exchanger are estimated to increase by $1,000 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made at the end of each year. a. Choose cash flow diagrams of both alternatives. b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments. Click the icon to view the interest and annuity table for discrete compounding when i= 8% per year. a. What is the cash flow diagram of the lease alternative? Choose the correct answer below. OA. OB. $10,000 ΕΟΥ $10,000 EOY 4. 2 3 4. X

A company is considering investing $17,500 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be $1,500. Maintenance costs for the exchanger are estimated to increase by $1,000 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made at the end of each year. a. Choose cash flow diagrams of both alternatives. b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments. Click the icon to view the interest and annuity table for discrete compounding when i= 8% per year. a. What is the cash flow diagram of the lease alternative? Choose the correct answer below. OA. OB. $10,000 ΕΟΥ $10,000 EOY 4. 2 3 4. X

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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