You work for Midstates Solar Power. A manager asked you to determine which of the following two

Question:

You work for Midstates Solar Power. A manager asked you to determine which of the following two machines will have the lower

(a) Capital recovery

(b) Equivalent annual total cost.

Machine Semi2 has a first cost of $80,000 and an operating cost of $21,000 in year 1, increasing by $500 per year through year 5, after which time it will have a salvage value of $13,000. Machine Auto1 has a first cost of $62,000 and an operating cost of $21,000 in year 1, increasing by 8% per year through year 5, after which time it will have a scavenge value of $2000. Utilize an interest rate of 10% per year to determine both estimates.

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...