A construction company is evaluating two options for an elevator, each of which has a useful life in 10 years. Option 1 costs $45, 000 to install and $2700 annually, with a salvage value of $ 3000 in year 10. Option 1 also requires a significant overhaul in year 6 with a cost of $8, 000. Option 2 costs $54, 000, costs $2, 800 annually, and has a salvage value of $5000 in year 10. Annual interest is 4%, compounded monthly. Which option would you choose? Show your work.
A construction company is evaluating two options for an elevator, each of which has a useful life in 10 years. Option 1 costs $45, 000 to install and $2700 annually, with a salvage value of $ 3000 in year 10. Option 1 also requires a significant overhaul in year 6 with a cost of $8, 000. Option 2 costs $54, 000, costs $2, 800 annually, and has a salvage value of $5000 in year 10. Annual interest is 4%, compounded monthly. Which option would you choose? Show your work.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A construction company is evaluating two options for an elevator, each of which has a useful life in 10 years. Option 1 costs $45, 000 to install and $2700 annually, with a salvage value of $ 3000 in year 10. Option 1 also requires a significant overhaul in year 6 with a cost of $8, 000. Option 2 costs $54, 000, costs $2, 800 annually, and has a salvage value of $5000 in year 10. Annual interest is 4%, compounded monthly. Which option would you choose? Show your work.
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