Question

unanswered A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,641.00 to install, $5,038.00 to operate per year for 7 years at which time it will be sold for $7,020.00. The second, RayCool 8, costs $41,431.00 to install, $2,030.00 to operate per year for 5 years at which time it will be sold for $8,945.00. The firm's cost of capital is 5.09%. What is the equivalent annual cost of the AC360? not submitted Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

EAC of AC 360

Installation Cost 26,641

Years = 7 Years

Operation Cost 5,038

Salvage Value 7,020

Cost of Capital 5.09%

Equivalent Annual Cost = (Installation Cost * (r/(1-(1/(1+r) ^n))) – (Salvage Value / (((1+r) ^n-1)/r)) + (Annual Operational Cost)

= (26641 * 0.0509/(1-(1/(1+0.0509)^7))) – (7020/ (((1+0.0509)^7-1) /0.0509)) + 5038

= (26641*0.173384) - (7020/8.1643) + 5038

= 8797.282

= 8797.28 (rounded off to two)