Sundance Detective Agency purchased new surveillance equipment with the following estimates. The year index is k =

Question:

Sundance Detective Agency purchased new surveillance equipment with the following estimates. The year index is k = 1, 2, 3, . . . .

First cost ....................................$1050

Annual maintenance cost ........$70 + 5 k per year

Extra annual revenue................$200 + 50 k per year

Salvage value .............................$600 for all years

(a) Calculate the payback period to make a return of 10% per year.

(b) For a preliminary conclusion, should the equipment be purchased if the actual useful life is 7 years?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...