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You work as an equipment manager and is considering how often the equipment should be replaced. Suppose a new machine has the following costs over its useful life:

PERIOD Cost comment

(In thousand)

0 $20 purchasing price

1 $1 maintenance cost

2 $1.5 maintenance cost

3 $2.5 maintenance cost

4 $4 maintenance cost

5 $6 maintenance cost

6 $8.5 maintenance cost

7 $12 maintenance cost

The cost of capital is 10%.

1. If you had to buy the machine and rent to the production manager for that machine’s economic life, what annual rental payment would you have to charge?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92403335

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