Answer:
a. The annual capital cost is $9,798
b. The equivalent annual savings is $27,495
c. The decision is wise
Explanation:
a. In order to calculate the annual capital cost (ownership cost) for the equipment we would have to calculate the following formula:
annual capital cost=P(A/P,i,n)-F(A/F,i,n).........
annual capital cost=$65,000(A/P,9%,10)-$5,000(A/F,9%,10)
=$65,000(0.1558)-$5,000(0.0658)
=$10,127-$329
=$9,798
b. In order to calculate the equivalent annual savings (revenues) we would have to calculate the following formula:
equivalent annual savings=A+G(A/G,i,n).........
equivalent annual savings=$18,000+$2,500(A/G,9%,10)
=$18,000+$2,500(3.798)
=$18,000+$9,495
=$27,495
c. The decision is wise becauste the equivalent annual savings are greater than the annual costs of the equipment.
