Last year, a decision was made to keep the same equipment in lieu of buying new equipment. The old equipment's trade-in value last year was $4000 and its value this year is $2000. The operating cost was $700 last year. If bought last year, the new equipment would have cost $14K, the salvage value after 8 years would be $2000, and it would have an annual operating cost of $4000. If bought last year, what would have been the EUAC of the new equipment (in dollars) at 16% interest rate per year? (provide your answer in the box as a negative value if you arrive at costs) What would have been the correct decision?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Last year, a decision was made to keep the same equipment in lieu of buying new equipment. The old equipment's trade-in value last year was $4000 and its value this year is $2000. The operating cost was $700 last year. If bought last year, the new equipment would have cost $14K, the salvage value after 8 years would be $2000, and it would have an annual operating cost of $4000.

If bought last year, what would have been the EUAC of the new equipment (in dollars) at 16% interest rate per year? (provide your answer in the box as a negative value if you arrive at costs)

What would have been the correct decision?

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