Minimum annual equivalent cost

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Reference no: EM138897

Q. A new water pump has been purchased for $1,400 that is expected to require $600 per year in annual operating costs plus annual maintenance costs of $50 the first year and increasing by $100 per year thereafter ($50 in year 1, $150 in year 2, $250 in year 3, etc.). When salvaged, the pump is expected to be sold as scrap for $250 no matter how old it is. If the interest rate is 8%, what is the expected economic life for this water pump and what is the minimum annual equivalent cost, AE (i)?

Reference no: EM138897

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