Question

The following describes the first of two equipment being considered for purchase for a new factory. It requires an initial investment of $70,000 and annual maintenance costs of $5,000. It has a salvage value of $9,000 at the end of its 6 years of service life. Calculate the present worth of this equipent at a MARR of 10% per year.

A. −$91,777
B. −$86,696
C. −$43,143
D. −$96,857

Answer 1

To calculate the present worth of the equipment, use the formula for Present Worth, considering the initial investment, annual maintenance costs, salvage value, and the MARR. In this case, the present worth is approximately -$91,777.

Step-by-step explanation:

To calculate the present worth of the equipment, we need to consider the initial investment, annual maintenance costs, salvage value, and the MARR (Minimum Attractive Rate of Return).

Using the formula for Present Worth, we can calculate:

• Initial Investment: $70,000
• Annual Maintenance Costs: $5,000
• Salvage Value: $9,000
• MARR: 10%

Using the formula, we can calculate:

PW = -Initial Investment + (Annual Maintenance Costs / (1 + MARR)^n) + (Salvage Value / (1 + MARR)^n)

Where n is the number of years (in this case, 6).

By substituting the values into the formula, the present worth of the equipment is approximately -$91,777 (option A).