A company is considering investing $10,000 in a heat exchanger. The heat exchanger will last five...

 

Transcribed Image Text:

A company is considering investing $10,000 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be S1,000. Maintenance costs for the exchanger are estimated to increase by $500 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made at the end of each year. a. Choose cash flow diagrams of both alternatives. b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments. Click the icon to view the interest and annuity table for discrete compounding wheni = 8% per year. What is the cash flow diagram of the purchsing alternative? Choose the correct answer below. O A. XB. EOY $2,000 EOY $2,000 3 4 5 3 4 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,500 $2,000 $2,500 $3,000 $10,000 $10,000 Oc. D. EOY EOY $2,000 2 3 4 5 1 3 4 $1,000 $1,000 $1,500 $1,500 $2,000 $2,000 $2.500 $2,500 $3,000 $3.000 $10,000 $10,000 b. The company should lease the heat exchanger if annual fee is less than: S . (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. All parts showing Clear All Check Answer A company is considering investing $10,000 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be S1,000. Maintenance costs for the exchanger are estimated to increase by $500 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made at the end of each year. a. Choose cash flow diagrams of both alternatives. b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments. Click the icon to view the interest and annuity table for discrete compounding wheni = 8% per year. What is the cash flow diagram of the purchsing alternative? Choose the correct answer below. O A. XB. EOY $2,000 EOY $2,000 3 4 5 3 4 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,500 $2,000 $2,500 $3,000 $10,000 $10,000 Oc. D. EOY EOY $2,000 2 3 4 5 1 3 4 $1,000 $1,000 $1,500 $1,500 $2,000 $2,000 $2.500 $2,500 $3,000 $3.000 $10,000 $10,000 b. The company should lease the heat exchanger if annual fee is less than: S . (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. All parts showing Clear All Check Answer

Answer rating: 100% (QA)

Since company is investing 10000 in a heat exchang... View the full answer