Homework Help is Here – Start Your Trial Now!
Business
Economics
Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By the end of year 6, the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines, that would do essentially the same job. These machines cost $32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) (i) Replaced now (ii) Replaced two years from now (iii) Replaced six years from now Equivalent Annual Cost

Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By the end of year 6, the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines, that would do essentially the same job. These machines cost $32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) (i) Replaced now (ii) Replaced two years from now (iii) Replaced six years from now Equivalent Annual Cost

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter1: Introduction And Goals Of The Firm
Section: Chapter Questions
Problem 2.2CE
See similar textbooks
icon
Related questions
Question
Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By the end of year 6, the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines,that would do essentially the same job. These machines cost $32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) (i) Replaced now (ii) Replaced two years from now (iii) Replaced six years from now Equivalent Annual Cost
Transcribed Image Text:Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By the end of year 6, the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines,that would do essentially the same job. These machines cost $32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) (i) Replaced now (ii) Replaced two years from now (iii) Replaced six years from now Equivalent Annual Cost
Expert Solution
steps

Step by step

Solved in 4 steps with 7 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting for Impairment of Assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS