The equation when machine deteriorates at the rate of d per year.
Explanation of Solution
Given, equation 14A.33 is
If the machine deteriorates at the rate of d per year then equation 14A.33 becomes:
The present discounted value from machine ownership when
Here, r = rate of return,
v = rental rate.
When machine deteriorates at the rate of d per year then for period n, the numerator value of this equation should be
After considering the depreciation rate d, the equation for present discounted value becomes:
When n is tends to infinity, the equation for yield is:
Thus, the equation for rental rate is
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Chapter 14A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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