A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,915.00 to install, $5,093.00 to operate per year for 7 years at which time it will be sold for $7,041.00. The second, RayCool 8, costs $41,124.00 to install, $2,165.00 to operate per year for 5 years at which time it will be sold for $9,040.00. The firm's cost of capital is 5.43%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.
A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,915.00 to install, $5,093.00 to operate per year for 7 years at which time it will be sold for $7,041.00. The second, RayCool 8, costs $41,124.00 to install, $2,165.00 to operate per year for 5 years at which time it will be sold for $9,040.00. The firm's cost of capital is 5.43%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two
units. The first, the AC360, costs $26,915.00 to install, $5,093.00 to operate per year for 7 years at
which time it will be sold for $7,041.00. The second, RayCool 8, costs $41,124.00 to install,
$2,165.00 to operate per year for 5 years at which time it will be sold for $9,040.00. The firm's cost
of capital is 5.43%. What is the equivalent annual cost of the AC360? Assume that there are no
taxes.
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