Question

Growth Fertilizer Company purchases a gravity settling tank by borrowing the $30,000 purchase price. The loan is to be repaid with four equal annual payments at an interest rate of 12%/yr/yr. It is anticipated that the tank will be used for 9 years and then sold for $2000. Annual operating and maintenance expenses are estimated to be $9000/yr. A savings of $15,000 per year is realized over the present filtration system. The firm uses a MARR of 15%/yr/yr for its economic analyses. Determine whether the firm should invest in the tank using each of the following measures of worth:

a. Future Worth

b. Annual Worth

c. IRR

Answer 1

As the tax rate is not provided, tax is not considered

On the expenses,
On the interest
On the depreciation and the
Savings

The Analysis Table would look like this

I would include the formulae in the end.

The answers would then be

a.)Future Worth = $16,492

b.)Annual Worth = $1,832

c.)IRR = 17.23%

I have also included the present value cash flows and the test for IRR. Formulae as follows