A municipal council purchased a water supply pump at a cost of RM 200,000 two years ago to be useful for eight years. This pump can be replaced with an improved version for preference and satisfaction of public water supply in municipal area. The present market value, annual maintenance cost and ultimate salvage value of the two pumps are given in Table 4. The expected economic life of the improved version pump is six years. The bank interest rate is 12%, compounded annually. Estimate the annual equivalent cost of the two water supply pumps .Table 4: Comparison of two water supply pumps Option Present market Annual maintenance Ultimate salvage value value cost Present water suppl;y 25,000 120,000 25,000 um Improved version 14,000 150,000 20,000

A municipal council purchased a water supply pump at a cost of RM 200,000 two years ago to be useful for eight years. This pump can be replaced with an improved version for preference and satisfaction of public water supply in municipal area. The present market value, annual maintenance cost and ultimate salvage value of the two pumps are given in Table 4. The expected economic life of the improved version pump is six years. The bank interest rate is 12%, compounded annually. Estimate the annual equivalent cost of the two water supply pumps .Table 4: Comparison of two water supply pumps Option Present market Annual maintenance Ultimate salvage value value cost Present water suppl;y 25,000 120,000 25,000 um Improved version 14,000 150,000 20,000

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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