Question

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,474.00 to install, $5,159.00 to operate per year for 7 years at which time it will be sold for $7,133.00. The second, RayCool 8, costs $41,249.00 to install, $2,163.00 to operate per year for 5 years at which time it will be sold for $9,083.00. The firm’s cost of capital is 5.61%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.

Answer 1

PV - 26,474 Solution - Initial Cost AC360 = $26,474 COL -5.61% AC360 Year Cashflows pud 5.61% - 26,474 . -5159 0.94688 -5159 0.89658 -5159 0.84896 0.80386 4 -5159 5 -5159 -5159 - -4884.96 - 4625. 46 2 3 - 4379.72 -4147.11 -3926.82 0.76116 _3718:24 Et 92.0 6 0.68244 1347.13 7 1974 (7133-5159) NPV - $ 50, 782.24 prifa (5.61% 7) = 5.6606 Equivalent Annual cost NOV Prifa (5-61%,7) -50,782.24 5.6606 EAC $ 8971-18