A steam boiler is purchased on the basis of guaranteed performance

Economics Dec 03, 2020

A steam boiler is purchased on the basis of guaranteed performance. A test indicates that the operating cost will be $300 more per year than the manufacturer guaranteed. If the expected life of the boiler is 20 years, and money is worth 10%, the amount the purchaser should deduct from the purchase price to compensate for the extra operating cost is nearest to

Expert Solution

Deduction ($) = Present worth of additional cost

= 300 x P/A(10%, 20)

= 300 x 8.5136

= 2,554

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