Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but 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 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 year
Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year, but 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 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 year
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications
Section: Chapter Questions
Problem 30P
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