Machine A costs s10,000 up front, and lasts for 18 years. It has annual maintenance costs...

 

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Machine A costs s10,000 up front, and lasts for 18 years. It has annual maintenance costs of $1,000 per year. Machine B costs $15,000 up front, lasts for 22 years, and has annual maintenance costs of $800 per year. Both machines produce the same product. The interest rate is 12% per annum. 1. What is the PV of the cost of each machine? 2. What is the rental equivalent of each machine? 3. Which machine is the better purchase if you assume no value to flexibility and do not expect different machine costs or contracting conditions in the future? Machine A costs s10,000 up front, and lasts for 18 years. It has annual maintenance costs of $1,000 per year. Machine B costs $15,000 up front, lasts for 22 years, and has annual maintenance costs of $800 per year. Both machines produce the same product. The interest rate is 12% per annum. 1. What is the PV of the cost of each machine? 2. What is the rental equivalent of each machine? 3. Which machine is the better purchase if you assume no value to flexibility and do not expect different machine costs or contracting conditions in the future?

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SUMMARY Machine A cost S10000 Last 18years ... View the full answer