Question

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,686.00 to install, $5,170.00 to operate per year for 7 years at which time it will be sold for $6,850.00 The second, RayCool 8, costs $41,298.00 to install, $2,163.00 to operate per year for 5 years at which time it will be sold for $9,075.00. The firm's cost of capital is 6.85%. What is the equivalent annual cost of the RayCool8? unanswered not submitted Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

RayCool8
Discount rate	0.0685
Year	0	1	2	3	4	5
Cash flow stream	-41298	-2163	-2163	-2163	-2163	6912
Discounting factor	1	1.0685	1.141692	1.219898	1.3034612	1.392748
Discounted cash flows project	-41298	-2024.33	-1894.56	-1773.1	-1659.428	4962.849
NPV = Sum of discounted cash flows
NPV RayCool8 =	-43686.57
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Equvalent annuity(EAA)=	-10611.99
Required rate =	0.0685
Year	0	1	2	3	4	5
Cash flow stream	0	-10612	-10612	-10612	-10611.99	-10612
Discounting factor	1	1.0685	1.141692	1.219898	1.3034612	1.392748
Discounted cash flows project	0	-9931.67	-9294.97	-8699.08	-8141.394	-7619.46
Sum of discounted future cashflows =	-43686.57
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor