Question 1189739: A laboratory test machine costs 150, 000, lasts for 6 years and has a salvage value of 30, 000. How much could an investor afford to pay for another
machine of the same purpose, whose life is 10 years with a salvage value of 40,000, if money is worth 5%.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! i used the financial calculator at
first i found out what the annual payment was for 150,000 at 5% for 6 years with a salvage value of 30,000.
those results are shown below:
i then found out what the present value was for 25142.10 annual payment at 5% for 8 years with a salvage value of 40,000.
those result are shown below:
the input for the first analysis was everything except pmt.
the output was pmt.
the input for the second analysis was everything except present value.
the output was present value.
this made both plans equivalent to each other in terms of the annual charges per year.
the interpretation is that buying a piece of equipment for 189,572.32 with an economic life of 8 years and a salvage value of 40,000 is equivalent, in terms of annual charges, to buying a piece of equipment for 150,000 with an economic life of 6 years and a salvage value of 30,000.
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