Calculate the equivalent annual cost

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Reference no: EM13987877

Hayden Inc. has a number of copiers that were bought four years ago for $33,000. Currently maintenance costs $3,300 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $9,300. The machines have a current resale value of $9,300, but at the end of year 2 their value will have fallen to $4,800. By 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 $28,000, and the company can take out an eight-year maintenance contract for $1,600 a year. The machines will have no value by the end of the eight years and will be scrapped. Both machines are depreciated by using seven-year MACRS, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 8%. (Use PV table.)

a. Calculate the equivalent annual cost, if the copiers are "a" replaced now, "b" replaced 2 years later, "c" replaced 6 years later. (Round "PV Factor" to 3 decimal places and final answers to the nearest dollar amount. Input all amounts as positive values.)

Equivalent Annual Cost

"a" replaced now $ ___

"b" replaced 2 years later $___

"c" replaced 6 years later $ ___

Reference no: EM13987877

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