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A company is considering the purchase of a new conveyor system that will be placed into temporary service for 4 years. Historical records indicate that
A company is considering the purchase of a new conveyor system that will be placed into temporary service for 4 years. Historical records indicate that the maintenance costs for the conveyor will be $5,898 per year and will escalate by $10,064 each year thereafter. Alternatively, the manufacturer is offering a full maintenance service plan for $60,000 (to be paid in year 0 ) that would eliminate any future maintenance costs to the company. Assume a discount rate of 5%. Calculate the present value (cost) of the maintenance and the present value of the service plan. How much money will the company save by choosing the service plan? If the company will lose money, enter this value as a negative number. For example, if the present value of the service plan is $50 (cost) and the present value of the maintenance is $30, the company will lose $20 by purchasing the service plan. In this case, the value to be entered is 20
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