ESL = 3 years, and AW = -65765.48 because the annual cost is lowest in year 3.
AW for 1 yr of operation = -55000 * (A/P, 12%, 1) - 45000 + 35000 * (A/F, 12%, 1)
= (-55000 * 1.12) - 45000 + 35000
AW for 1 yr of operation = -71600
AW for 2 yrs of operation = -55000 * (A/P,12%,2) - 45000 - 2500 * (A/G, 12%, 2) + 20000 * (A/F, 12%, 2)
= (-55000 * 0.591698) - 45000 - (2500 * 0.471698) + (20000 * 0.471698)
AW for 2 yrs of operation = -69288.67
AW for 3 yrs of operation = -55000 * (A/P, 12%, 3) - 45000 - 2500 * (A/G, 12%, 3) + [15000 * (A/F, 12%, 3)]
= -55000 * 0.416349 - 45000 - 2500 * 0.924609 + 15000 * 0.296349
AW for 3 yrs of operation = -65765.48
AW for 4 yrs of operation = -55000 * (A/P, 12%, 4) - 45000 - 2500 * (A/G,
12%, 4) - 1000 * (A/F, 12%, 4) + 2000 * (A/F, 12%, 4)
= -55000 * 0.329234 - 45000 - 2500 * 1.358852 + 1000 * 0.209234
AW for 4 yrs of operation = -66295.77
As Annual cost is lowest in yr 3, ESL = 3 yrs, AW = -65765.48
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