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Hinson's Homegrown Farms needs a new irrigation system. System one will cost $145,000, have annual maintenance costs of$10,000, and need an overhaul at the end of year six costing $30,000. System two will have first-year maintenance costs of$5000 with increases of $500 each year thereafter. System two would not require an overhaul. Both systems will have no salvage value after 12 years. If Hinson's cost of capital is 4%, using annual worth analysis determine the maximum Hinson should be willing to pay for system two.
Solution
VerifiedAnswered 1 year ago
Answered 1 year ago
Step 1
1 of 8Given:
System :
- First cost:
- Annual maintenance cost:
- Overhaul cost:
- Estimeated useful life: years
- Interest rate:
System :
- First-year maintenance cost:
- Annual increase in maintenance cost:
- Estimeated useful life: years
- Interest rate:
Required:
- First cost for system .
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