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STALIN [3.7K]
2 years ago
9

Country Breads uses specialized ovens to bake its bread. One oven costs $249,000 and lasts about 15 years before it needs to be

replaced. The annual operating cost per oven is $34,300. What is the equivalent annual cost of an oven if the required rate of return is 14 percent?
(A) -$74.839.43
(B) -$48,349.72
(C) -$82,800.19
(D) $50,560.08
(E) -$28,729.77
Business
1 answer:
Svetradugi [14.3K]2 years ago
3 0

Answer:

The equivalent annual cost of an oven is (A) -$74.839.43

Explanation:

Hi

<u>Known Data</u>

Operating cost=OC=\$34,300,n=15, VP=\$249,000 and i=14\%

<u>Computing total cost per year</u>

We are going to use the formula below with the known data.

A=\frac{VP}{\frac{1-(1+i)^{-n}}{i} } =\frac{249000}{\frac{1-(1+0.14)^{-15}}{0.14} }=40539.43. Then this is the fixed amortization cost per year.

Finally, we sum the fixed amortization cost per year and the operating cost:

Total cost per year=TCPY=A+OC=\$40,539.43+\$34,300=\$74,839.43, therefore the answer is  (A) -$74.839.43

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