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Unformatted text preview: Salvage 50,000 Purchase Price (500,000) (450,000)    PV factor at 15% 1 0.8696 0.7561 0.6575 0.5718 (450,000)    Net Present Value (387,853) Therefore, the minimum net present value of savings on operating costs that result from equivalent to the cost of the new equipment. Assuming that any savings in variable operating costs are evenly spread over the 5 yea that totals $387,853 at 15% over 5 years: Cost of Capital 15% Number of Periods 5 years Annuity Factor 3.35 PV of an annuity 387,853 PV of an annuity = Annual annuity * Annuity factor $387,853 = X * 3.3522 X = $387,853 / 3.3522 X = $115,701 The savings in operating costs have to be 115,701 each year to justify the new equipm costs equal $234,299 ($350,000  $115,701) YR5 125,000 125,000 0.4972 62,147 m the new equipment must be $387,853, ars, we need to calculate the annuity ent. That means the new annual variable...
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This note was uploaded on 05/11/2011 for the course AFM 102 taught by Professor R.ducharme during the Spring '09 term at Waterloo.
 Spring '09
 R.DUCHARME

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