You are trying to pick the least-expensive equipment for your manufacturing operations. You have two choices: the Hi-Quality, which will cost $18,000 to purchase and which will have OCF of -$1,000 annually throughout the equipment’s expected life of 5 years; and Lo-Budget, which will cost $10,000 to purchase and which will have OCF of -$1,300 annually throughout that vehicles expected three-year life. Both pieces of equipment will be worthless at the end of their life. If you intend to replace whichever type of equipment you choose with the same thing when its life runs out, again and again out into the foreseeable future. Your business has a cost of capital of 10 percent. One iteration of each delivery equipment will consist of the following cash flows: Year 0 1 2 3 4 5 Hi-Quality CFs -$18,000 -$1,000 -$1,000 -$1,000 -$1,000 -$1,000 Lo-Budget CFs -$10,000 -$1,300 -$1,300 -$1,300
You are trying to pick the least-expensive equipment for your manufacturing operations. You have two choices: the Hi-Quality, which will cost $18,000 to purchase and which will have OCF of -$1,000 annually throughout the equipment’s expected life of 5 years; and Lo-Budget, which will cost $10,000 to purchase and which will have OCF of -$1,300 annually throughout that vehicles expected three-year life. Both pieces of equipment will be worthless at the end of their life. If you intend to replace whichever type of equipment you choose with the same thing when its life runs out, again and again out into the foreseeable future. Your business has a cost of capital of 10 percent. One iteration of each delivery equipment will consist of the following cash flows: Year 0 1 2 3 4 5 Hi-Quality CFs -$18,000 -$1,000 -$1,000 -$1,000 -$1,000 -$1,000 Lo-Budget CFs -$10,000 -$1,300 -$1,300 -$1,300
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- You are trying to pick the least-expensive equipment for your manufacturing operations. You have two choices: the Hi-Quality, which will cost $18,000 to purchase and which will have OCF of -$1,000 annually throughout the equipment’s expected life of 5 years; and Lo-Budget, which will cost $10,000 to purchase and which will have OCF of -$1,300 annually throughout that vehicles expected three-year life. Both pieces of equipment will be worthless at the end of their life. If you intend to replace whichever type of equipment you choose with the same thing when its life runs out, again and again out into the foreseeable future. Your business has a cost of capital of 10 percent. One iteration of each delivery equipment will consist of the following cash flows:
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
|
Hi-Quality CFs |
-$18,000 |
-$1,000 |
-$1,000 |
-$1,000 |
-$1,000 |
-$1,000 |
|
Lo-Budget CFs |
-$10,000 |
-$1,300 |
-$1,300 |
-$1,300 |
Calculate the equivalent
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