Compare the annual equivalent costs of two alternatives

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Seaside Baking Co is considering purchase of new pastry oven. Alternative 1: Conventional oven will cost $100,000 and can be expected to last 5 years, with a salvage value of $10,000. Operating cost, e.g., electricity used, will be $22,000 per year. Maintenance Cost is will be $5,000 per year. Alternative 2: Convection oven will cost $140,000, should last 5 years, and will have a salvage value of $12,000. The operating costs will be $10,000 per year. Maintenance Cost will be a bit higher at $7,000 per year. Assume the services provided by the pastry ovens are identical; assume an interest rate of 10%. a) Compare the annual equivalent costs of the 2 alternatives. b) Make a recommendation for selection based upon equivalent costs.

Reference no: EM131142942

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