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 $6000. 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 $5500. It will also last for eight years and have maintenance costs of $900 in year three, $900 in year five, and $1000 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. Please show all of your work.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $6000. 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 $5500. It will also last for eight years and have maintenance costs of $900 in year three, $900 in year five, and $1000 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. Please show all of your work.

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