The owner of a business is considering investing $55,000 in new equipment. He estimates that the net cash flows will be $5,000 during the first year and will increase by $2,500 per year each year thereafter. The equipment is estimated to have a 10-year service life and a net salvage value at the end of this time of $6,000. The firm's interest rate is 12%.(a) Determine the annual capital cost (ownership cost) for the equipment.(b) Determine the equivalent annual savings (revenues).(c) Determine whether this investment is wise.

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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.