A university bought computers years ago worth $50,000. Its annual operating cost is $4,689. If it is going to be upgraded to have a new life of 4 more years and if is sold today, its price is $38,057. Its salvage value is $500. Alongside with this, it will buy new medium-type computer at a cost of $46,031, salvage cost of $300 and its annual operating cost is 6,634. The medium-type computers are expected to last for 5 years. This is to be considered the 1st Option. The 2nd Option is to buy larger computer, which has a cost of P4.2M, P1.12M salvage value, and P500,000 annual operating cost per year. It would last 5 years. The last option is to lease a computer. The computer has annual payment of P1.4M per year and initial payment of P100,000. It would last 4 years. Assume that the interest rate is 12% per year. What is the Annual Equivalent Cost of the 1st Option?
A university bought computers years ago worth $50,000. Its annual operating cost is $4,689. If it is going to be upgraded to have a new life of 4 more years and if is sold today, its price is $38,057. Its salvage value is $500. Alongside with this, it will buy new medium-type computer at a cost of $46,031, salvage cost of $300 and its annual operating cost is 6,634. The medium-type computers are expected to last for 5 years. This is to be considered the 1st Option. The 2nd Option is to buy larger computer, which has a cost of P4.2M, P1.12M salvage value, and P500,000 annual operating cost per year. It would last 5 years. The last option is to lease a computer. The computer has annual payment of P1.4M per year and initial payment of P100,000. It would last 4 years. Assume that the interest rate is 12% per year. What is the Annual Equivalent Cost of the 1st Option?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 15P
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A university bought computers years ago worth $50,000. Its annual operating cost is $4,689. If it is going to be upgraded to have a new life of 4 more years and if is sold today, its price is $38,057. Its salvage value is $500. Alongside with this, it will buy new medium-type computer at a cost of $46,031, salvage cost of $300 and its annual operating cost is 6,634. The medium-type computers are expected to last for 5 years. This is to be considered the 1st Option.
The 2nd Option is to buy larger computer, which has a cost of P4.2M, P1.12M salvage value, and P500,000 annual operating cost per year. It would last 5 years.
The last option is to lease a computer. The computer has annual payment of P1.4M per year and initial payment of P100,000. It would last 4 years.
Assume that the interest rate is 12% per year. What is the Annual Equivalent Cost of the 1st Option?
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