Whether to purchase new high-speed railcars or not

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A public transit authority is evaluating whether to purchase new high-speed railcars from Siemens AG or General Electric. The Siemens AG cars cost $275,000 each, are expected to last ten years and have anticipated annual maintenance costs of $10,000 each. The General Electric cars cost $195,000, are expected to last six years and have anticipated annual maintenance costs of $15,000 each. If the transit authority's cost of capital is 8%, and the cost is spread evenly over each year, which manufacturer should they chose? (Hint: Annualize the cost using the PMT function in Excel.) Does your conclusion change if General Electric guarantees that annual maintenance on their railcars will not exceed $10,000 each?

Reference no: EM13859400

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