Calculate the equivalent annual cost

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Question - Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $29,000, and the company can take out an eight-year maintenance contract for $1,600 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 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%.

Required - Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now.

Reference no: EM133113788

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