Determine the annual capital cost for the equipment

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Question - The owner of a business is considering investing $55,000 in new equipment. He estimates that the net cash flows will be $5,000 during the first year, but will increase by $2,500 per year the next year and each year thereafter. The equipment is estimated to have a 10-year service life and a net salvage value of $6,000 at that time. The firm's interest rate is 12%.

Required -

(a) Determine the annual capital cost (ownership cast) for the equipment.

(b) Determine the equivalent annual savings (revenues).

(c) Determine whether this is a wise investment.

Reference no: EM133056063

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