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posted by  nyg12 on 10/20/2009 3:48:43 PM  |  status: Closed  |  Earned Karma: 1906

Finding capital cost for investment

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Economics N/A N/A N/A 10/22/2009 at 11:00:00 AM
Question Details:
Machine cost $235,000, useful life is estimated to be 5 years. At end of time, salvage value is estimated to be $47,000. What is capital cost for investment if interest rate is 18%?

- Do you use: CR(i)=I(A/P, i, N) - S(A/F, i, N)?
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posted by devis on 10/22/2009 12:31:24 AM  |  status: Live
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Response Details:
Machine Cost                        $235,000
Useful Life                              5 years
Salvage Value                         $47,000
Interest Rate                           18%
Capital Cost                            ?
Capital Cost = Annual Worth (AW) / i
Annual Worth = -Initial Cost (A/P, I, N) + Salvage Value (A/F, I, N)
Annual Worth   = -$235,000 (0.319775) + $47,000 (0.139778)
Annual Worth   = -$75,147.125 + $6,569.566



Annual Worth   = -$68,577.559


Capital Cost = -$68,577.559 / 0.18
Capital Cost = -$380,986.44
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