Year Cost of operation Rescue Value 1 1500 3500 2 1600 2500 3 1800 1700 4 2100 800 5 2500 800 6 2900 We want to find the optimal replacement period. Use 12% annual interest and a new machine value of $5,000.00 600 7 3400 500 Cost charges are assumed to occur in the middle of the year and are discounted from the beginning of the year, so they must be multiplied by a factor V'/2 = (1 + i)-¹/2, 8 4000 500
Year Cost of operation Rescue Value 1 1500 3500 2 1600 2500 3 1800 1700 4 2100 800 5 2500 800 6 2900 We want to find the optimal replacement period. Use 12% annual interest and a new machine value of $5,000.00 600 7 3400 500 Cost charges are assumed to occur in the middle of the year and are discounted from the beginning of the year, so they must be multiplied by a factor V'/2 = (1 + i)-¹/2, 8 4000 500
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
factor V^(1/2)=(1+i)^(-1/2)
Transcribed Image Text:1
1500
2
1600
3
Year
5
2500
60
7
Cost of
1800
2100
2900
3400
4000
operation
Rescue
3500
2500
1700
800
800
600
500
500
Value
Cost charges are assumed to occur in the middle of the year and are discounted from the
beginning of the year, so they must be multiplied by a factor V'/2 = (1 + i)-/2,
We want to find the optimal replacement period. Use 12% annual interest and a new
machine value of $5,000.00
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