Engineers from FedUp are investigating the possibility of shifting some of their delivery services from trucks to drones. They have identified a suitable drone for delivery operations. The Air Strato Pioneer drone uses solar power, batteries and a small gasoline motor to power itself for up to sixteen hours. It has a range of more than 1,000 kilometers and it can reach altitudes of 26,000 to 40,000 feet. The initial cost of the drone is $80,000. FedUp plans to finance the drones over a four year period at an interest rate of 8% per year. A fifteen percent down payment will be required. The operating and maintenance cost of the drone is expected to be $4,000 in the third year of its operation with an increase of 4% per year thereafter. An overhaul of the drone is expected at the end of six years of operation. The overhaul cost is expected to be $20,000. The salvage value is estimated to be ten percent of the initial cost after ten years of use. FedUp will require a MARR of 6% per year for this project.
a. Construct an amortization table for the financial arrangement indicating the interest payment, principal payment, and balance for each year of the loan.
b. Compute the amount of interest charged in the third year of the financial agreement.
c. Compute the present worth cost of the drone over its ten year life.
d. Compute how much money FedUp must make each year for them to breakeven on their investment in the drone.