Question

A printing press was purchased 4 years ago for $100,000. The current market value is

$45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000,
$24,000, and $17,000. The O&M costs are estimated to be $16,000 this year. These costs
are expected to increase by $5,000 per year starting year 2. MARR = 10%.

The foregone interest in year 4 is
A. $2,400
B. $2,200
C. $1,850
D. $0

Answer 1

To calculate the foregone interest in year 4, we need to find the opportunity cost of the market value of the printing press at the end of year 4, which is $24,000.

The opportunity cost is the return that could be earned if the market value of the printing press were invested elsewhere. Since the MARR is 10%, we can use this rate as the opportunity cost.

The foregone interest in year 4 is therefore:

Foregone interest = Market value x MARR

Foregone interest = $24,000 x 0.10

Foregone interest = $2,400

Therefore, the answer is A. $2,400.