Present Value of an Investment in Equipment

question 91

Essay

Present value of an investment in equipment. (Tables needed.)
Find the present value of an investment in equipment if it is expected to provide annual savings of $30,000 for 10 years and to have a resale value of $75,000 at the end of that period. Assume an interest rate of 9% and that savings are realized at year end.

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Definitions:

Incurred Costs

Expenses that a company has realized or committed to pay, often related to operations or production.

Fixed Manufacturing Cost Per Unit

The portion of total fixed manufacturing costs allocated to each unit of product, which remains constant on a per unit basis regardless of production volume.

Relevant Range

The range of activity within which the assumptions about fixed and variable costs are valid for the purposes of cost analysis and budgeting.

Conversion Costs

The sum of labor and overhead expenses required to convert raw materials into finished goods.