A machine costs $15,000 and has an estimated lifetime of 8 years after which it could be sold for $3000.Annual maintenance costs are M.If the cost of capital is j₁ = 8%,the capitalized cost is $40,914.72.What is the value of M? (Answer to the nearest dollar)

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Quizplus · Accepted Answer

The capitalized cost of a machine is calculated using the formula that accounts for the initial cost, salvage value, maintenance costs, and the cost of capital. Given the capitalized cost is $40,914.72, the initial cost is $15,000, the salvage value is $3,000, the lifetime is 8 years, and the cost of capital is 8%, we can use the formula for the present value of an annuity (for the maintenance costs M) plus the present value of the salvage value and subtract this from the initial cost to solve for M. The correct maintenance cost that fits this scenario is $945.

A Machine Costs $15,000 and Has an Estimated Lifetime of 8