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Question

# Luis is responsible for buying some specialized manufacturing equipment that has a purchase price of $10,000 and annual operating costs of$1000. The vendor is offering a special buyer incentive that provides free maintenance for the first four years. After that time, the maintenance is $500 per year over the 10-year life, and there is an overhaul expense in year 5 of$2000. The equipment has a salvage value of \$1000. If the interest rate is 8%, what is the present value?

Solution

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Step 1
1 of 5

Given:

• First cost: $\10000$
• Annual operating cost: $\1000$
• Annual maintenance for the year $5$ to $10$: $\500$
• Overhaul expense: $\2000$
• Salvage value: $\1000$
• Number of years: $10$ years
• Interest rate: $8\%$

Required:

• Present worth of the costs

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