Real Turf is considering purchasing an automatic sprinkler system for its sod farm by borrowing the entire $35,000 purchase price. The loan would be repaid with four equal annual payments at an interest rate of 12%/year. It is anticipated that the sprinkler system would be used for 9 years and then sold for a salvage value of $3,000. Annual operating and maintenance expenses for the system over the 9-year life are estimated to be $11,000 per year. If the new system is purchased, cost savings of $18,000 per year will be realized over the present manual watering system. Real Turf uses a MARR of 15%/year for economic decision making.
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