ABC Company is planning to purchase an equipment. The purchase price of the equipment is $375,000. The company plans to make a down payment of 29% of the first cost, and for the remainder of the cost of the equipment, they plan to take a loan. The company will pay off this loan in 8 years at 10% in equal annual payments.

ABC believes that the equipment can be sold for $75,000 at the end of its 12-year service life. The new equipment will increase the company's annual income by $91,000. Maintenance and operating costs are expected to be $4,000 during the first year and to increase by $1,200 each year. ABC uses a before-tax MARR of 12% for its preliminary economic studies. Determine

i) Annual payment amount for the loan. (15 points)

ii) Present worth of costs (down & loan payments, maintenance & operation costs) at MARR. (24 points)

iii) Present worth of benefits (annual income, salvage value). (20 points)

iv) NPW of the investment to ABC. Is the investment desirable?

Answer rating: 100% (QA)

calculate each value step by step i Annual payment amount for the loan Loan amount Purchase price Down payment Loan amount 375000 029 375000 Loan amou... View the full answer