, 10.09.2020andreyvaught2754

# It is estimated that a certain piece of equipment can save ​\$ per year in labor and materials costs. The equipment has an expected life of years and no market value. If the company must earn a ​% annual return on such​ investments, how much could be justified now for the purchase of this piece of​ equipment?

one of the appeals of a sole proprietorship is that business expenses are kept separate from your personal income tax return

2,283,000

explanation:

The amount that could be justified now for the purchase of this piece of​ equipment is \$73,747.41.

Explanation:

Note: This question is not complete as all the data in it are omitted. A complete question is therefore provided before answering the question as follows:

It is estimated that a certain piece of equipment can save \$22,000 per year in labor and materials cost. The equipment has an expected life of five years and no market value. If the company must earn a 15% annual return on such investments, how much could be justified now for the purchase of this piece of equipment?

The explanation to the answer is now given as follows:

To calculate this, the formula for calculating the present value of an ordinary annuity is used as follows:

PV = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)

Where;

PV = Present value of the amount to justify the equipment purchase = ?

P = yearly savings in labor and materials costs = \$22,000

r = annual return rate = 15% = 0.15

n = Equipment has an expected life = 5

Substitute the values into equation (1) to have:

PV = \$22,000 * [{1 - [1 / (1 + 0.15)]^5} / 0.15]

PV = \$22,000 * [{1 - [1 / 1.15]^5} / 0.15]

PV = \$22,000 * [{1 - 0.869565217391304^5} / 0.15]

PV = \$22,000 * [{1 - 0.497176735298289} / 0.15]

PV = \$22,000 * [0.502823264701711 / 0.15]

PV = \$22,000 * 3.35215509801141

PV = \$73,747.41

Therefore, the amount that could be justified now for the purchase of this piece of​ equipment is \$73,747.41.

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