You are considering investing $65,000 in new equipment. You estimate that the net cash flows will be $18,000 during the first year, but will increase by $2,500 per year the next year and each year thereafter. The equipment is estimated to have a 10-year service life and a net salvage value of $5,000 at that time. Assume an interest rate of 9%. (a) Determine the annual capital cost (ownership cost) for the equipment.
(a) Determine the equivalent annual savings (revenues).
(b) Determine whether this is a wise investment.