ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 13, Problem 33P
To determine
To find: The time period after which the existing asset should be replaced.
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K70.
Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year,
but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to
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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
$32,000, and the company can take out an eight-year maintenance contract for $1,000 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 40%. 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: (i)…
HW#5
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Chapter 13 Solutions
ENGR.ECONOMIC ANALYSIS
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