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20% 286 CHAPTER 6 Annual-Equivalence Analysis 6.12 Keiko is considering buying a 2017 Smart For Two costing $23,650 and finde the retaining values of the vehicle over next five years are as follows: I Percent of the total value petainedafter 36 months: 25% Percent of the total value retained after 60 months: 16% An If her interest rate is 5% compounded annually, what is the ownership the vehicle over three years? five years? 6.13 You invest in a piece of equipment costing $40,000. The equipment will be used for two years, and it will be worth $15,000 at the end of two years. The machine will be used for 4,000 hours during the first year and 6,000 hours during the second year. The expected savings associated with the use of the piece of equip ment will be $28,000 during the first year and $40,000 during the second year. Cost of Your interest rate is 10%. (a) What is the capital recovery cost? (b) What is the annual equivalent worth? (c) What is net savings generated per machine-hour? 6.14 You are considering purchasing a dump truck. The truck will cost $75000 have operating and maintenance costs that start at S18,000 the first vear increases by $2,000 per year. Assume that the salvage value at the end of years is $22,000 and interest rate is 12%. What is the equivalent annual con owning and operating the truck? 6.15 A construction firm is considering establishing an engineering computing cen ter. The center will be equipped with three engineering workstations that c $52,000 each, cach having a service life of six years. The expected salvage valge of each workstation is $2,000. The annual operating and maintenance cos would be $28,000 for each workstation. At a MARR of 16%, determine the equivalent annual cost for operating the engineering center. 6.16 Beginning next year, a foundation will support an annual seminar on campu with the earnings of a $200,000 gift it received this year. It is felt that 6% interest will be realized for the first 10 years, but that plans should be made to anticipate an interest rate of 4% after that time. What amount should be added to the foundation now to fund the seminar at the $20,000 level into infinity? 6.17 The Geo-Star Manufacturing Company is considering a new investment in a punch-press machine that will cost $138,000 and has an annual maintenance cost of $10,000. There is also an additional overhauling cost of $24,000 for the equipment once every five years. Assuming that this equipment will last inf nitely under these conditions, what is the capitalized equivalent cost of this vestment at an interest rate of 8%? 6.18 You are considering investing $82,000 in new equipment. You estimate thal net cash flows will be $21,000 during the first vear, but will increase by S per year the next year and cach year thereafter. The equipment is estimateo have a 12-year service life and a net salvage valuc of $7000 at that time. Ass an interest rate of 10%. (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues). (c) Determine whether this is a wise investment