Compute the annual-equivalence amount for the following cash flow series at i = 12%$1.600S1.600$800SH00S800$500$500$1.000You invest in a piece of equipment costing $50,000. The equipment will be used for two years,and it will be worth $20,000 at the end of three years. The machine will be used for 4,000 hoursduring the first year, 6,000 hours during the second year, and 5,000 hours during the third year.The expected savings associated with the use of the piece of equipment will be $28,000 during thefirst year, $40,000 during the second year, and $35,000 during the third year. Your interest rate is12%.(a) What is the capital recovery cost?(b) What is the annual equivalent worth?(c) What is net savings generated per machine-hour?

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Compute the annual-equivalence amount for the following cash flow series at i = 12% $1.600 S1.600 S800 SNOO S800 3 $500 S500 S1,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Compute the annual-equivalence amount for the following cash flow series at i = 12%
$1.600
S1.600
$800
SH00
S800
$500
$500
$1.000
You invest in a piece of equipment costing $50,000. The equipment will be used for two years,
and it will be worth $20,000 at the end of three years. The machine will be used for 4,000 hours
during the first year, 6,000 hours during the second year, and 5,000 hours during the third year.
The expected savings associated with the use of the piece of equipment will be $28,000 during the
first year, $40,000 during the second year, and $35,000 during the third year. Your interest rate is
12%.
(a) What is the capital recovery cost?
(b) What is the annual equivalent worth?
(c) What is net savings generated per machine-hour?

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