You are trying to pick the least expensive car for
your new delivery service. You have two choices: the Scion xA,
which will cost $18500 to purchase and which will have OCF of
-$2100 annually throughout the vehicle's expected life of three
years as a delivery vehicle; and the Toyota Prius, which will cost
$28000 to purchase and which will have OCF of -$1100 annually
throughout that vehicle's expected 4-year life. Both cars will be
worthless at the wnd of their life. You intend to replace whichever
type of car you choose with the same thing when its life runs out,
again and again into our forseeable future.
Ifvthe business has a cost of capital of 12 percent, calculate the
EAC.
Solution:
Based on below calculation, It is better to purchase Scion xA and replace it again and again for forseeable future. EAC of Scion xA is $ 516.15 less than EAC of Toyota Prius
EAC(Equivalent Annual Cost) = ( Initial Cost / Annuity Factor for respective years ) + Annual OCF(Operating Cashflow)
EAC of Scion xA = ( $18,500 / 2.4018 ) + $2,100 = $ 9,802.56
EAC of Toyota Prius = ( $28,000 / 3.0373 ) + $1,100 = $ 10,318.71
| Annuity Factor @ 12% | ||
| Year | Factor | Annuity Factor |
| 1 | 0.8929 | 0.8929 |
| 2 | 0.7972 | 1.6901 |
| 3 | 0.7118 | 2.4018 |
| 4 | 0.6355 | 3.0373 |
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which...
You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $16,500 to purchase and which will have OCF of –$1,700 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $24,000 to purchase and which will have OCF of –$900 annually throughout that vehicle’s expected 4-year life. Both cars will be worthless at the end of their...
You are trying to pick the least-expensive car you new delivery service. You have two choices the Scion A which will cost #23500 to purchase and which will have OCF of $3100 annually throughout the vehicle's expected life of three as delivery vehicle; and the Toyota Prius, which will cost $32000 to purchase and which will have OCF of $1600 annually throughout the vehicle's 4-year expected life. If the business has a cost capital of 11 percent calculate the EAC;...