A precision lathe costs $10,100 and will cost $20,500 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 4 years, what is the equivalent annual cost of the tool?

(Enter your answer as a positive value. Round your answer to the nearest cent.)

The equivalent annual cost of the precision lathe is calculated by summing up the annualized initial cost ($3,533.13) and the annual operating cost ($20,500), resulting in approximately $24,033.13.

Explanation:

The equivalent annual cost is the sum of the annualized initial cost and the annual operating cost. The initial cost is $10,100 and it can be annualized by using the discount rate and the life of the lathe. So, the annualized initial cost can be calculated using the formula for the present value of an annuity: PVA = C * [(1 - (1 + r) ^ -n) / r], where C is the initial cost, r is the discount rate, and n is the number of years. Substituting C = $10,100, r = 10%, and n = 4, we get PVA = $10,100 * [(1 - (1 + 0.10) ^ -4) / 0.10] which is approximately $3,533.13.

The annual operating cost is simply $20,500. Therefore, the total equivalent annual cost is $3,533.13 + $20,500 = $24,033.13. Hence, the equivalent annual cost of the precision lathe is approximately $24,033.13.

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A precision lathe costs $10,100 and will cost $20,500 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 4 years, what is the equivalent annual cost of the tool? (Enter your answer as a positive value. Round your answer to the nearest cent.)

Answer :

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Explanation:

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A precision lathe costs $10,100 and will cost $20,500 a year to operate and maintain. If the discount rate is 10% and the lathe will last for 4 years, what is the equivalent annual cost of the tool?

(Enter your answer as a positive value. Round your answer to the nearest cent.)