3. You wanted to replace the muffler of an old car which you plan to keep for 3 more years. The shop offered two alternatives. For $50.00 he would install a muffler guaranteed for 2 years. But for $65.00 he would install a muffler guaranteed for 5 years. Which one would you choose if i = 20%?
Added by Austin F.
Close
Step 1
For the muffler guaranteed for 2 years: PV1 = $50 / (1 + i)^2 PV1 = $50 / (1 + 0.20)^2 PV1 = $50 / 1.44 PV1 = $34.72 For the muffler guaranteed for 5 years: PV2 = $65 / (1 + i)^5 PV2 = $65 / (1 + 0.20)^5 PV2 = $65 / 2.48832 PV2 = $26.12 Show more…
Show all steps
Your feedback will help us improve your experience
Penny Riley and 78 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Sri K.
20. A firm is considering which of two mechanical devices to install to reduce costs in a particular situation. Both devices cost $1000 and have useful lives of five years and no salvage value. Device A can be expected to result in $300 savings annually. Device B will provide cost saving of $400 the first year but will decline by $50 annually, making the second year saving to $350 and third year savings $300 and so forth. With interest at 7% per year, which device should the firm purchased?
Azat N.
In building a highway, the district engineer is faced with the alternatives of building a 4-lane underpass that would take care of all future needs or a 2-lane underpass now and a second underpass 20 years later. For the 4-lane underpass: First cost = ₱400,000 Annual maintenance cost = ₱10,000 No salvage value For the 2-lane underpass: First cost = ₱270,000 Annual maintenance cost = ₱8,000 No salvage value Which of the following gives us the best alternative that should be adopted by showing the difference of its equivalent present worth?
Akash M.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD