Question

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,935.00 to install, $5,150.00 to operate per year for 7 years at which time it will be sold for $6,983.00. The second, RayCool 8, costs $41,061.00 to install, $2,188.00 to operate per year for 5 years at which time it will be sold for $9,071.00. The firm’s cost of capital is 6.48%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.

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#2

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,011.00 to install, $5,132.00 to operate per year for 7 years at which time it will be sold for $7,160.00. The second, RayCool 8, costs $41,366.00 to install, $2,149.00 to operate per year for 5 years at which time it will be sold for $9,063.00. The firm’s cost of capital is 6.34%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes.

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Answer 1