Question

Calculate the present worth of all costs for a newly acquired machine with an initial cost of $32,000, no trade-in value, a life of 13 years, and an annual operating cost of $15,000 for the first 4 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year.

The present worth of all costs for a newly acquired machine is determined to be $

Answer 1

Present Worth is computed as follows.

Year	Cost ($)	PV Factor @10%	Discounted Cost ($)
	(A)	(B)	(A) x (B)
0	32,000	1.0000	32,000.00
1	15,000	0.9091	13,636.36
2	15,000	0.8264	12,396.69
3	15,000	0.7513	11,269.72
4	15,000	0.6830	10,245.20
5	16,500	0.6209	10,245.20
6	18,150	0.5645	10,245.20
7	19,965	0.5132	10,245.20
8	21,962	0.4665	10,245.20
9	24,158	0.4241	10,245.20
10	26,573	0.3855	10,245.20
11	29,231	0.3505	10,245.20
12	32,154	0.3186	10,245.20
13	35,369	0.2897	10,245.20
		PW of Costs ($) =	171,754.80