Question

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,601.00 to install, $5,006.00 to operate per year for 7 years at which time it will be sold for $7,028.00. The second, RayCool 8, costs $41,041.00 to install, $2,058.00 to operate per year for 5 years at which time it will be sold for $8,922.00. The firm’s cost of capital is 6.20%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes.

Answer format: Currency: Round to: 2 decimal places.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -