Question

The maintenance cost of a production machine is $200 in the first year, which will increase by $200 each year thereafter (i.e., $400 in the 2nd year, $600 in the 3rd year, $800 in the 4th year, and so on). The machine is used for 10 years. The equivalent uniform annual cost for the maintenance of the machine at an interest rate of 5% is closest to:

Answer 1

B. $820

Step-by-step explanation:

Options are "A. $935 B. $820 C. $420 D. $1,020 E. $949.56"

Present worth = [$200(P/A, 5%,9) + $200(P/G, 5%,9)(P/F, 5%,1)]

Present worth = $200*(7.108) + $200(26.127)(0.9524)]

Present worth = $200(33.235) * (0.9524)

Present worth = $6,647 * 0.9524

Present worth = $6330.6028

Present worth = $6,330.60

Equivalent uniform annual cost = Present worth (A/P, 5%,10)

Equivalent uniform annual cost = $6,330.60 (0.1295)

Equivalent uniform annual cost = $819.8130626

Equivalent uniform annual cost = $820