Airodyne Wind, Inc. has wind tunnels that can operate vertically or horizontally for evaluating the effects of air flow on a component’s PCB response and reliability. The company expects to build a new tunnel that will be outfitted with multiple sensor ports. For the estimates below, calculate the equivalent annual cost of the project.

First cost, $ ?800,000
Replacement cost, year 2, $ ?300,000
AOC, $/year ?950,000
Salvage value, $ 250,000
Life, years 4
Interest rate, % 10

What will be an ideal response?


AW = -800,000(A/P,10%,4) – 300,000(P/F,10%,2)(A/P/10%,4) - 950,000
+ 250,000(A/F,10%,4)
= -800,000(0.31547) – 300,000(0.8264)(0.31547) - 950,000
+ 250,000(0.21547)
= $-1,226,720 per year

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