A new equipment costs $20,000. The following information is also available: Operating costs (payable at the end of the year) amount to $5,000 at the end of year 1. If the equipment was kept on for another year, operating costs would amount to $5,500 at the end of that year. If the equipment was disposed of after 1 year, the trade‐in allowance would amount to $16,000. For a disposal after 2 years, the trade‐in allowance would amount to $13,000 Ignore tax. Calculate the optimal replacement cycle if the cost of capital is 10%. The equipment should be replaced after ?
A new equipment costs $20,000. The following information is also available: Operating costs (payable at the end of the year) amount to $5,000 at the end of year 1. If the equipment was kept on for another year, operating costs would amount to $5,500 at the end of that year. If the equipment was disposed of after 1 year, the trade‐in allowance would amount to $16,000. For a disposal after 2 years, the trade‐in allowance would amount to $13,000 Ignore tax. Calculate the optimal replacement cycle if the cost of capital is 10%. The equipment should be replaced after ?
Chapter3: Income Sources
Section: Chapter Questions
Problem 88P
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A new equipment costs $20,000. The following information is also available:
Operating costs (payable at the end of the year) amount to $5,000 at the end of year 1. If the equipment was kept on for another year, operating costs would amount to $5,500 at the end of that year.
If the equipment was disposed of after 1 year, the trade‐in allowance would amount to $16,000. For a disposal after 2 years, the trade‐in allowance would amount to $13,000
Ignore tax.
Calculate the optimal replacement cycle if the cost of capital is 10%. The equipment should be replaced after ?
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