Question

The Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $100,000 and has an annual maintenance cost of $10,000. There is also an additional overhauling cost of $20,000 for the equipment once every four years. Assuming that this equipment will last infinitely under these conditions, what is the capitalized equivalent cost of this investment at an interest rate of 10%?

Answer 1

Equivalent annual cost: 24,309.42 dollars

Step-by-step explanation:

Equivalent annual cost:

10,000 maintenance.

PTM to generate the 20,000 every four year

the 100,000 dollars amortize indefinitely:

Overhaul PMT

`PV / ((1+r)^(time) -1)/(rate) = C\\`

PV $20,000.00

time 4

rate 0.1

`20000 / ((1+0.1)^(4) -1)/(0.1) = C\\`

C $ 4,309.416

Amortization of the investment: (perpetuity)

C/r = Principal

C / 10% = 100,000

C = 10,000

Total annual cost:

10,000 + 10,000 + 4,309.416 = 24,309.42