Capital Recovery Annual Cost
Mediumcapital recoveryannual worth
What is the approximate annual capital recovery for an initial cost of $20,000 over 5 years at 8% interest? Assume zero salvage value and equal end-of-year payments.
- A$4,000/yr
- B$5,009/yr
- C$6,200/yr
- D$8,000/yr
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Answer: B. $5,009/yr
A = P[i(1 + i)ⁿ/((1 + i)ⁿ − 1)]. With P = $20,000, i = 0.08, and n = 5, A = $20,000(0.250456) = $5,009.13/yr. Simply dividing by 5 ignores interest.
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