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A new machine will cost $21,000 and will have a resale value of $12,000 after five...

A new machine will cost $21,000 and will have a resale value of $12,000 after five years. Special tooling will cost $6,000 and will have a resale value of $1,500 after five years. Maintenance will be $2,000 per year. If the effective annual interest rate is 6%, then what is the average annual cost of ownership during the five year period?

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Answer #1
Initial Investment 21000
Investment in tooling 6000
Present of annual manitenance cost 8424.8
($ 2000 *Annuity of 5 yrs at 6% i.e. 4.2124)
Total Present value of cash outflows 35425
Less: Present value of salvage value of investment 8967
($ 12000* PVF at 6% i.e. 0.7473)
Less: Present value of salvage of tooling 1121
($ 1500*PVF at 6% i.e. 0.7473)
Net Present worth of outflows 25337
Annuity factor at 6% for 5 yrs 4.2124
Annualised equiavalent outflow 6015
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