Solution-Determine the perpetual equivalent annual

Determine the perpetual equivalent annual maintenance cost

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a. Calculate the perpetual equivalent annual cost (years 1 through infi nity) of $5 million in year 0, $2 million in year 10, and $100,000 in years 11 through infi nity. Use an interest rate of 10% per year.

b. A Pennsylvania coal mining operation has installed an in-shaft monitoring system for oxygen tank and gear readiness for emergencies. Based on maintenance patterns for previous systems, there are no maintenance costs for the first 2 years, they increase for a time period, and then they level off. Maintenance costs are expected to be $150,000 in year 3, $175,000 in year 4, and amounts increasing by $25,000 per year through year 6 and remain constant thereafter for the expected 10-year life of the system. If similar systems with similar costs will replace the current one, determine the perpetual equivalent annual maintenance cost at i _ 10% per year.

Reference no: EM13881647

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Determine the perpetual equivalent annual maintenance cost

Reference no: EM13881647

Reference no: EM13881647

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