Hollywood Tabloid needs a new state-of-the-art camera to produce its monthly mag
ID: 2466733 • Letter: H
Question
Hollywood Tabloid needs a new state-of-the-art camera to produce its monthly magazine. The company is looking at two cameras that are both capable of doing the job and has determined the following:
Camera 1 costs $6,000. It should last for eight years and have annual maintenance cost of $300 per year. After eight years, the magazine can sell the camera for $300.
Camera 2 costs $5,500. It will also last for eight years and have maintenance costs of $900 in year three, $900 in year five, and $1,000 in year seven. After eight years, the camera will have no resale value. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)
Assume that an interest rate of 9% properly reflects the discount rate in this situation and that maintenance costs are paid at the end of each year. Determine the total cost of cameras.
Hollywood Tabloid needs a new state-of-the-art camera to produce its monthly magazine. The company is looking at two cameras that are both capable of doing the job and has determined the following:
Explanation / Answer
Camera 1
Particulars
Year
Amount($)
PVF
Present Value
Cost of camera
0
6,000
1
6,000
Annual Maintenance cost
1-8
300
5.53
1,659
Less: Salvage value
8
300
.502
(150.6)
Total
7,508.4
Camera 2
Particulars
Year
Amount($)
PVF
Present Value
Cost of camera
0
5,500
1
5,500
Annual Maintenance cost
3
900
.772
694.8
Annual Maintenance cost
5
900
.65
585
Annual Maintenance cost
7
1,000
.547
Total
7,326.8
Company should opt for Camera 2
Particulars
Year
Amount($)
PVF
Present Value
Cost of camera
0
6,000
1
6,000
Annual Maintenance cost
1-8
300
5.53
1,659
Less: Salvage value
8
300
.502
(150.6)
Total
7,508.4
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.