Question

This question about " Engineering Economics ".

An equipment for yearly maintenance of vehicles at Ahmed's workshop has an initial cost of $30,000, an operating cost of $7000 per year, and a salvage value of $5000 after its 20-year life. For a real interest rate of 5% per year and an inflation rate of 4% per year, the annual capital recovery requirement for the equipment (in future dollars) is determined by

O AW=30,000(A/P,9.5%,20) – 7000 + 5000(A/F,9.5%,20)

O AW = 30,000(A/P,5.5%,20) - 7000 + 5000(A/F,5.5%, 20)

O AW = 30,000(A/P,4.5%,20) - 7000 + 5000(A/F,4.5%,20)

O AW = 30,000(A/P,9.2%,20)-7000 + 5000(A/F,9.2%,20)

Answer 1

Ans.

Correct Option is 4th Option - Annual Worth (AW) = 30,000( A/P , 9.2% , 20) - 7000 + 5000 ( A/F , 9.2% , 20 )

Explanation

Inflation Rate = 4% or 0.04

Interest Rate = 5% or 0.05

Interest rate will be = inflation rate + interest rate + ( inflation rate x interest rate )

                                = 0.04 + 0.05 + ( 0.05 x 0.04 )

                                = 0.09 + 0.002 = 0.092 or 9.2%

Hence , for calculating the Annual Worth. interest rate will be 9.2%

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