A company is considering purchasing a new machine tool. In addition to the initial purchase and installation costs, management is concerned about the machine’s maintenance costs, which are expected to be $1,000 at the end of the first year of the machine’s life and increase 8 percent/year thereafter. The machine tool’s expected life is 15 years. Company management would like to know the equivalent worth for expected costs. If the firm’s time value of money is 10 percent/year compounded annually,
a. what is the present worth equivalent?
b. what is the annual worth equivalent?