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EXCEL, an equipment costing $100,000 has a useful life of 6 years
EXCEL, an equipment costing $100,000 has a useful life of 6 years. It has a resale value of $8,000. Annual costs will be $7,000 for each of the year. Another equipment, APLUS costing $120,000 has a useful life of eight years, after which time its estimated resale value will be $25,000. Annual costs will be $5,000 for the first three years and then $8,000 for each of the next five years. Compute the annual equivalent cost for each equipment using a discount rate of 10%. Which equipment will be your choice and why
Expert Solution
EXCEL=(100000-8000/1.1^6)*10%/(1-1/1.1^6)+7000=28923.8790
APLUS=(120000-25000/1.1^8)*10%/(1-1/1.1^8)+(5000/1.1+5000/1.1^2+5000/1.1^3+8000/1.1^4+8000/1.1^5+8000/1.1^6+8000/1.1^7+8000/1.1^8)*10%/(1-1/1.1^8)=26908.7451
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