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Calculate the present worth of all costs for a newly acquired machine with an initial cost of $26,000, no trade-in value, a life of 13 years, and an annual operating cost of $12,000 for the first 5 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year. The present worth of all costs for a newly acquired machine is determined to be $

Sagot :

Answer:

The present worth of all costs for the newly acquired machine is determined to be $131,097.89.

Explanation:

Note: See the attached excl file for the calculation of the present worth of all costs for the newly acquired machine (in bold red color).

In the attached excel file, the following formula are used:

1. From Year 6 to Year 13, Annual operating cost for the current year = Annual operating cost for the previous year * (1 + Growth rate) = = Annual operating cost for the previous year * (1 + 10%)

2. Discounting Factor = 1 / (1 + r)^n .............. (1)

r = interest rate per year = 10%, or 0.10

n = each particular year being considered

From the attache excel, the present worth of all costs for the newly acquired machine is determined to be $131,097.89.

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