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1. The purchase of a piece of equipment will incur the following cash flows: . An initial cost of $75,000 Starting in year 3, an
1. The purchase of a piece of equipment will incur the following cash flows: . An initial cost of $75,000 Starting in year 3, an annual maintenance cost of $10,000 will be incurred and it will increase by 17% per year for the next 10 years. . As a result of the equipment purchase, the plant will see an increase in revenues of $120,000 per year for 12 years starting in year 1. Management has decided that a 10% rate of return is required to invest in any piece of equipment. Draw the cash flow for the purchase of the equipment. [5 pts] b. Calculate the present worth associated with the purchase of the equipment. [15 pts]
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