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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?

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Given:

  • First cost: $10000\$10000
  • Annual operating cost: $1000\$1000
  • Annual maintenance for the year 55 to 1010: $500\$500
  • Overhaul expense: $2000\$2000
  • Salvage value: $1000\$1000
  • Number of years: 1010 years
  • Interest rate: 8%8\%

Required:

  • Present worth of the costs

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