Question

Machine A has an initial cost of $6,000 with total annual maintenance costs of $750. Machine B has an initial cost of $8,500 with total annual maintenance costs of $405. At a 10% nominal annual interest rate, in approximately how many years do the two machines have the same present worth

Answer 1

When the initial cost of Machine A is $6,000 and that of Machine B is $8,500, then both the machines will have the same current value at the end of 10 years.

What is the meaning of current value?

The present market value of an asset that prevails in the market is known as the current value of an asset. Using the given conditions, the current value will be the same as computed under,

$\rm Cost\ of\ Machine\ A\ + Maintenance\ Cost(Interest\ Rate)= Cost\ of\ Machine\ B\ +Maintenance\ Cost(Interest\ Rate)$

Putting the given value and solving further we get,

$\rm Current\ Value\ x\ 7.25\ x\ 10\% = \dfrac{2500}{345}\\\\\rm Current Value= 10$

Hence, the significance of current value is aforementioned.

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