/connect.html Ch567 Ch5.67 Help Save & White Oaks Properties builds strip shoppi

Question

/connect.html Ch567 Ch5.67 Help Save & White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 10 years ago. 10 years ago, the original purchase price of the equipment was $800.000 and the operating cost has averaged $215,000 per year. Determine the equivalent annual cost of the equipment if the company can now sell it for $244,000. The company's MARR is 19% per year IMA) The equivalent annual cost of the equipment is determined to be $

Explanation / Answer

Solution:

Computation of Present Value of Cash Flows and Equivalent Annual Cost Particualrs Period PV Factor Amount Present Value Initial Cost of Equipment 0 1 $800,000.00 $800,000.00 Annual Operating Cost 1-10 4.338935 $215,000.00 $932,871.00 Salvage Value 10 0.175602 -$244,000.00 -$42,846.98 Present Value of Net Cost $1,690,024.02 Present Value Annuity Factor for 10 Years 4.338935 Equivalent Annual Cost (Present value of cost / Annuity factor) $389,502.05

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