SOLVE USING PAPER AND EQUATIONS. NO EXCEL

PLEASE !!!!!!!

BC Electronics is considering purchasing a

water filtration system to assist in circuit board

manufacturing. The system costs $40,000. It has

an expected life of 7 years, at which time its

salvage value will be $7,500. Operating and

maintenance expenses are estimated to be

$2,000 per year. If the filtration system is not

purchased, BC Electronics will have to pay

Bay City $12,000 per year for water purification.

If the system is purchased, no water purification

from Bay City will be needed. BC

Electronics must borrow half of the purchase

price, but they cannot start repaying the loan for

2 years. The bank has agreed to three equal

annual payments, with the first payment due at

the end of year 2. The loan interest rate is 8%

compounded annually. BC Electronics'

MARR is 10% compounded annually.

1.Represent the cash flow diagrams for BC electronics: investment versus service from bay city

2.What is the amount of the annual payment to the bank?

3.What is the present worth (PW) of the service option (Bay City)?

4.What is the present worth (PW) of the investment option?

5.Should BC Electronics buy the water filtration system?