Answered: year, and have a salvage value of…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 14PROB

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Suppose a company has a forklift but is considering purchasing a new electric-lift truck that would cost $18,000, have operating costs of $1,000 in the first year, and have a salvage value of $10,000 at the end of the first year. For the remaining years, operating costs increase each year by 15% over the previous years operating costs. Similarly, the salvage value declines each year by 25% from the previous year's salvage value. The lift truck has a maximum life of three years. The firm's required rate of return is 15%. Find the economic service life of this new machine.

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