Background: A client is contemplating on purchasing a new high efficiency pump and motor, with an initial cost of $10,000. The pump has a lifetime of 15 years and is estimated to save approximately $1,000 per year. There is an additional maintenance cost of $300 per year associated with this new pump. The pump will have a salvage value of $0 at the end of its lifetime. Assume the interest rate is 4%. Problem: What is the annual value of the pump?

Background: A client is contemplating on purchasing a new high efficiency pump and motor, with an initial cost of $10,000. The pump has a lifetime of 15 years and is estimated to save approximately $1,000 per year. There is an additional maintenance cost of $300 per year associated with this new pump. The pump will have a salvage value of $0 at the end of its lifetime. Assume the interest rate is 4%. Problem: What is the annual value of the pump?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

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