A piece of equipment has a first cost of $150,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S = 120,000 – 20,000k, where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000 + 10,000k. The interest rate is 15% per year. Determine the economic service life (a) by hand solution, using regular AW computations, and (b) by spreadsheet, using annual marginal cost estimates.
What will be an ideal response?
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