A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an
annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable
smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe
would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at
an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)

Question

Quizplus · Accepted Answer

The Answer of A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an
annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable
smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe
would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at
an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)

A Manufacturing Company Is Considering the Purchase of a New