Depreciation is straight-line to zero

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Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need six SALs, and each SAL costs $3, 650 and requires $390 of maintenance each year. At the end of the computer's eight-year life, Gold Star expects to sell each one for $190. Alternatively, Gold Star could buy five HALs. Each HAL costs $3, 800 and requires $445 of maintenance every year. Each HAL lasts for six years and has a resale value of $185 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has tax rate of 35 percent. Assume that the maintenance costs occur at year-end. Depreciation is straight- line to zero. What is the EAC of each model if the appropriate discount rate is 11 percent?

Reference no: EM131332454

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