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A company buys a machine for $25,000. The annual cost of maintaining the machine is $500...

A company buys a machine for $25,000. The annual cost of maintaining the machine is $500 per year for the first 5 years (End of Year 1 thru End of Year 5) and then it increases to $750 for the next 5 years (Year 6 thru Year 10). Consider all cash flows to be end of year cash flows. For an interest rate of 8% per year compounded yearly, find the annual maintenance cost of the machine and the present worth of the total cost.

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Answer #1

The question pertains to the PV calculation of the maintainence cost. The discount rate mentioned for present value calculations is 8%. The solution is as follows:

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