A company is considering buying a new machine. Two different models are available on the market.

MARR is 10%.

Data Model-I Model-II

Useful Life , Years 20 25

First Cost, $ 80,000 100,000

Salvage Value, $ 20,000 25,000

Annual Oper. Costs, $ 18,000 15,000 for years 1 thru 10 and

20,000 for years 11 thru 25.

Note: The annual operating cost for Model-I is same ($18k) every year; but it varies for Model-II as described above.

a). Assuming sum-of-years digits depreciation, what book value will Model-I have after two years?

b). Assuming double declining balance depreciation, what book value will Model-II have after three years?

c). Salvage value (SV) can be considered as a reduction in the cost. Ignore SV as given above for this part. What SV must Model-I have after 20 years in order for the equivalent uniform annual cost (EUAC) to equal $26,500?

*Please show formulas