The University has just invested $ 8,968 in a new desktop publishing system. From past experience, annual cash returns are estimated as

 

A(t) = $8000 - $4000(1+0.15)t-1

 

S(t) = $6000(1 - 0.9 )t

 

where A(t) stands for the net cash flow in period t and S(t) stands for the salvage value at the end of year t, and t equation 1

 

If the MARR is 12%, compute the annual equivalent cost in year 2.

$4,390.94 

The net cash flow in year 2 can be compute using the annual cash flow where t is taken as 2:

A(t) = $8000 - $4000(1+0.15)^(t-1)

t=2

A(t) =$8000 - $4000(1+0.15)^(2-1)=$ 3400

Also,the salvage value can be computed thus:

S(t) = $6000(1 - 0.9)^t

t=2

S(t) =$6000(1 - 0.9)^2=$ 60

Amount invested=$8,968

annual equivalent cost in year 2=present of initial investment-present of annual cash inflow plus salvage value

annual equivalent cost in year 2=$8,968/(1+12%)^2-($3400+$60)/(1+12%)^2

annual equivalent cost in year 2=$7,149.23-$ 2,758.29=$4,390.94