A piece of equipment now is use at a plant has a market value of 12,000. This market value is expected to decline by 40% per period (from the previous period) until it reaches zero at the end of period 4. The forecasted operating and repair cost of the equipment for the next period is 35,000 and this is expected to grow at a rate of 20 percent per period. Applying an interest rate of 12%, answer the questions below.
a. What is the period cost of using the equipment just one more period?
b. What is the lowest period equivalent cost for keeping the equipment in operation for the economic service life?
c. What is the economic service life?