For how many years should the splitter be retained

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Reference no: EM131983633

A self-employed worker operates a firewood-splitting service. He purchased a commercial-grade wood splitter for $5800. He used $400 of business capital and financed the balance at 5% per year for 3 years.

The estimated values of the splitter for the next 6 years are $2200 after the first year of ownership, decreasing by $400 per year to year 5, after which the resale value remains at $600.

Annual operating costs are expected to be $1000 the first year, increasing by 10% each year thereafter. He considers keeping the splitter at least 6 years. If money is worth 7% per year, for how many years should the splitter be retained? (Perform the Economic Minimum Life analysis for at least 12 years.)

Please explain how this is executed as well and show work

Reference no: EM131983633

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