Hayden Inc. has a number of copiers that were bought four years ago for $39,000. Currently maintenance costs $3,900 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9.900 The machines have a current resale value of $9.900, but at the end of year 2, their value will have fallen to $5,400. By the end of year 6. the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $34.000, and the company can take out an eight-year maintenance contract for $1,900 a year. The machines would have no value by the end of the eight years and would be scrapped Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7% a. Calculate the equivalent annual cost, if the coplers are: () replaced now, () replaced two years from now, or (i) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) () () ((H) Answer is complete but not entirely correct. Equivalent Annual Cost Replaced now Replaced two years from now Replaced six years from now 8.687 76 3 11,601.08 $ 24,766.32 $ $
Hayden Inc. has a number of copiers that were bought four years ago for $39,000. Currently maintenance costs $3,900 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9.900 The machines have a current resale value of $9.900, but at the end of year 2, their value will have fallen to $5,400. By the end of year 6. the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $34.000, and the company can take out an eight-year maintenance contract for $1,900 a year. The machines would have no value by the end of the eight years and would be scrapped Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7% a. Calculate the equivalent annual cost, if the coplers are: () replaced now, () replaced two years from now, or (i) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) () () ((H) Answer is complete but not entirely correct. Equivalent Annual Cost Replaced now Replaced two years from now Replaced six years from now 8.687 76 3 11,601.08 $ 24,766.32 $ $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Hayden Inc. has a number of copiers that were bought four years ago for $39,000. Currently maintenance costs $3,900 a year, but the
maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9.900. The
machines have a current resale value of $9.900, but at the end of year 2, their value will have fallen to $5,400 By the end of year 6
the machines will be valueless and would be scrapped.
Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $34,000,
and the company can take out an eight year maintenance contract for $1,900 a year. The machines would have no value by the end of
the eight years and would be scrapped.
Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 35%. Assume for simplicity that the
inflation rate is zero, The real cost of capital is 7%
a. Calculate the equivalent annual cost, if the copiers are: (1) replaced now, () replaced two years from now. or (it) replaced six years
from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
(1)
Answer is complete but not entirely correct.
Equivalent
Annual Cost
8.687 76
11,601.08
Replaced now
Replaced two years from now
Replaced six years from now
$
S
$ 24,766 32
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education