Answer to Question #255292 in Economics for Sera

Question

An equipment costs 50,000 pesos. It will have an annual operating cost of 20,000 pesos and 5,000 pesos salvage value after 5 years. At an interest rate of 10% per year, the capitalized cost of the equipment is?

Answer 1

The capitalized cost of the equipment is:

$K = 50,000 + 20,000/0.1 + 5,000/(1.1^5 - 1) = 258,189.87.$