Aerotron electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. the system costs $70,000. it has an expected life of 7 years at which time its salvage value will be $7,500. operating and maintenance expenses are estimated to be $7,000 per year. if the filtration system is not purchased, aerotron electronics will have to pay bay city $44,000 per year for water purification. if the system is purchased, no water purification from bay city will be needed. aerotron electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. the bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. the loan interest rate is 8% compounded annually. aerotron electronics, marr is 10% compounded annually. click here to access the tvm factor table calculator what is the annual worth of this investment? $ carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. the tolerance is ±10. what is the decision rule for judging the attractiveness of investments based on annual worth? should aerotron electronics buy the water filtration system?

Yes It will be accepted.

As the present worth (cost) of the water filtration

is far less than paying to Bay City for the purification

It decrease to $96,890.53‬ from  $214,210.43  of the Bay Ciity Option

Explanation:

Present worth if the system is not purchased:

C$ 44,000.00

time 7 years

rate0.1

PV$214,210.4280

We will now compare the value of the water filtration system:

F0 investment: 70,000 / 2 = 35,000

loan payment:

principal after two-years grace period:

rate0.08000

Amount40,824.00

Then there is 3 payment annuity-due as it begins at the beginning right away after the grace period:

PV40,824

time: 3 years

rate0.08

C  $ 14,667.667

Present value of the annuity discounted at Minimim accepted rate of return of 10%:

C14,667.67

time years 3

rate0.1

PV$40,123.9481

Maturity  40,123.95

time  2.00

rate  0.10000

PV   33,160.29

present value of the maintenance expenses:

C$ 7,000.00

time 7 years

rate0.1

PV$34,078.9317

Present value of the salvage value:

Salvage: $7,500.00

time  7 years

rate  0.10000

PV   3,848.69

Present worth of the water filtration system:

33,500 + +33,160.29 + 34,078.93 - 3,848.69 = 96,890.53‬

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