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A new engine will cost $12,000 with an estimated life of 15 years and a salvage value of $800. It is guaranteed to have an operating cost of $3,500 per year. The new engine is considered as a replacement for the old one. The old engine had a total annual cost of $5,200 to operate. Determine the rate of return of the new investment using a 6% sinking fund to recover depreciation if the old engine could be sold now for $2,000.
Sagot :
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