A piece of equipment has an estimated five-year life, an internal rate of return of 12 per cent and estimated annual savings of $15 000. What was the cost of the equipment?

Question

Quizplus · Accepted Answer

Using the formula for present value of annuity, we can find the cost of the equipment:
PV = Annual Savings * (1 - 1/(1+r)^n)/r
where r is the internal rate of return and n is the number of years (5 in this case).
Substituting the given values, we get:
PV = 15000 * (1 - 1/(1+0.12)^5)/0.12
PV = $54,075. Therefore, the cost of the equipment was $54,075.

A Piece of Equipment Has an Estimated Five-Year Life, an Internal