Question

White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 11 years ago. 11 years ago, the original purchase price of the equipment was $750,000 and the operating cost has averaged $230,000 per year. Determine the equivalent annual cost of the equipment if the company can now sell it for $214,000. The company’s MARR is 18% per year.

The equivalent annual cost of the equipment is determined to be $

Answer 1

Original purchase price of the equipment = $750,000

Operating cost has averaged = $230,000 per year

Salvage Value = $214,000

MARR = 18%

Life = 11%

Calculate the equivalent annual cost of the equipment

Annual Cost = $750,000 (A/P, 18%, 11) + $230,000 – $214,000 (A/F, 18%, 11)

Annual Cost = $750,000 (0.2148) + $230,000 – $214,000 (0.0348)

Annual Cost = $161,100 + $230,000 – $7,447

Annual Cost = $383,653