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)

Question

Quizplus · Accepted Answer

The formula for the capitalized cost is:

Capitalized cost = (original cost + present value of residual value + present value of maintenance costs)

Using the information given in the question, we can write:

$40,914.72 = ($15,000 + $3,000/(1+0.08)^8 + (M*(1-1/(1+0.08)^8)/0.08))

Solving for M, we get:

M = $945.08

Therefore, the best choice is B, with M = $945 rounded to the nearest dollar.

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