Question 4 Part A: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Amount Year incurred Initial Cost $175.000 Year o Annual Operating & Maintenance Costs $10.000 Per year, forever Major Maintenance Costs $80,000 First in year 5, then every 5 years forever Question 4 Part A: What is the equation used to find the portion due to the Nonrecurring Costs (the costs that do not repeat)? OP-175000 OP-175,000 + 80,000(F/P. 6%, 1) OP-175.000 + 80.000(F/P.6%, 5) OP-175,000 -80,000(P/F, 6%, 5) Question 4 Part B: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6% Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs Amount $175.000 $10,000 $80,000 Year incurred Year o Per year, forever First in year 5, then every 5 years forever Question 4 Part B: What is the equation used to find portion of the cost due to the Recurring Cost (major maintenance costs)? OP - [80.000(A/F. 6%, 5)/0.06 OP-180,000(F/A, 6%, 5}}/0.06 OP 80,000F/A, 6%, 4) Question 4 Part C: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs Amount $175.000 $10.000 $80,000 Year incurred Year o Per year, forever First in year 5, then every 5 years forever Question 4 Part C: What is the equation used to find the portion of the cost due to the Annual Cost (annual operating and maintenance costs)? OP-10,000/0.06 OP-10,000 P/F, 0.06. 1) + 80.000{P/A 0.06, 10) OP-10,000/0.06 +80.000(P/A. 0.06,5) Question 4 Part D: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever and will always be operational. The associated costs for the project are shown in the table below. How much should you change your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6%. Year incurred Amount $175,000 Year 0 Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs $10,000 $80,000 Per year, forever First in year 5, then every 5 years forever Question 4 Part D: What is the equation used to find the Capitalized Cost? O Nonrecurring Cost Recurring Cost + Annual Cost o Capitalized Cost - Nonrecurring Cost + Recurring Cost + Annual Cost Annual Cost - Nonrecurring Cost +Recurring Cost Capitalized Cost + Annual Cost - Nonrecurring Cost + Recurring Cost Question 4 Part E: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6%. Costs Amount Year incurred Year o Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs $175,000 $10,000 Per year, forever First in year 5. then every 5 years forever $80,000 Question 4 Part E: Provide the cost for the project. Enter your answer in the form 123456 Question 4 Part F: You have decided to invest in a project to build and run an automation line for a your brother's company. Your brother's company has specified that the automation line needs to last forever, and will always be operational. The associated costs for the project are shown in the table below. How much should you charge your brother's company now for the automation line in order to build and maintain the perpetual project? Interest rate is 6%. Amount Costs Initial Cost Annual Operating & Maintenance Costs Major Maintenance Costs $175.000 $10.000 $80,000 Year incurred Year o Per year, forever First in year 5, then every 5 years forever Question Part F: Choose the most correct statement. O In order to build and maintain the perpetual project I should charge my friend (the amount from Part E) now. O in order to build and maintain the perpetual project that will always be running with an interest rate of 6%, I should charge my friend (the amount from Part E). O In order to build and maintain the perpetual project that will always be running with an interest rate of 6%, I should charge my friend (the amount from Part E) now. o I should charge my friend (the amount from Part E)
