Engineering Economics Blog

 
A rental company spent $2500 on a new air compressor 7 years ago. The annual rental income from the compressor has been $750. The $100 spent on maintenance the fi rst year has increased each year by $25. The company plans to sell the compressor at the end of next year for $150. Construct the cash fl ow diagram from the company’s perspective and indicate where the present worth now is located.


Solution

Let now be time t = 0. The incomes and costs for years 7 through 1 (next year) are tabulated below with net cash fl ow computed using Equation [1.5]. The net cash fl ows (one negative, eight positive) are diagrammed in  Figure 1–9 . Present worth   P  is located at year 0.

Figure 1–9 Cash fl ow diagram, Example 1.11.