Reference no: EM132955764

A construction company now plans to buy a kind of big trencher for a gas pipeline project. The trencher costs $200,000 .It is supposed to operate for next 7 years. At the end of the 7th year, the company plans to sell it for $30,000 ( estimated market value )

The annual operating cost is estimated to be $30,000. On the other hand, It is expected to have $80,000 annual revenues in each year. For the calculations convenience we can simply assume that the annual cost and revenues occurs at the end of each year.

At the end of the fifth year ,it is expected to have a major maintenance, and it's cost is estimated to be $20,000 at that time. Answer the following question

1- Draw the cash flow Diagram

2- Based on the above statement of cash flows, What is the equivalent annuity of this truck over this period of 7 years, using the discount rate 10%.