Hollywood Tabloid needs a new state-of-the-art camera to produce its monthly magazine. The company is looking at two cameras that are both capable of doing the job and has determined the following:Camera 1 costs $6,000. It should last for eight years and have annual maintenance costs of $300 per year. After eight years, the magazine can sell the camera for $300.Camera 2 costs $5,500. It will also last for eight years and have maintenance costs of $900 in year three, $900 in year five, and $1,000 in year seven. After eight years, the camera will have no resale value.Required:Determine which camera Hollywood Tabloid should purchase. Assume that an interest rate of 9% properly reflects the discount rate in this situation and that maintenance costs are paid at the end of each year.
Hollywood Tabloid needs a new state-of-the-art camera to produce its monthly magazine. The company is looking at two cameras that are both capable of doing the job and has determined the following:
Camera 1 costs $6,000. It should last for eight years and have annual maintenance costs of $300 per year. After eight years, the magazine can sell the camera for $300.
Camera 2 costs $5,500. It will also last for eight years and have maintenance costs of $900 in year three, $900 in year five, and $1,000 in year seven. After eight years, the camera will have no resale value.
Required:
Determine which camera Hollywood Tabloid should purchase. Assume that an interest rate of 9% properly reflects the discount rate in this situation and that maintenance costs are paid at the end of each year.
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