Hollywood Tabloid needs a new state of the art camera to produce its monthly mag
ID: 2580455 • 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 $5.300. It should last for eight years and have annual maintenance costs of $260 per year After eight years, the magazine can sell the camera for $370. Camera 2 costs $4 800. It will also last for eight years and have maintenance costs of $830 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 O S1 and RVA of st) (use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.) Required: 1-a. Assume that an interest rate of 9% property reflects the discount rate in this situation and that maintenance costs are paid at the end of each yearl Determine the total cost of cameras Total Cost Camera 1 Camera 2Explanation / Answer
Interest rate id the 9%, so ww can use the PVF for dscounting cash flow @ 9% . CALCULATION OF TOTAL COST OF CAMERA 1 Year Cash Outflow PVF @ 9% Present Value 0 5300 1.0000 $ 5,300.00 1 260 0.9174 $ 238.53 2 260 0.8417 $ 218.84 3 260 0.7722 $ 200.77 4 260 0.7084 $ 184.19 5 260 0.6499 $ 168.98 6 260 0.5963 $ 155.03 7 260 0.5470 $ 142.23 8 260 0.5019 $ 130.49 8 - Salvage -370 0.4604 $ -170.36 TOTAL COST $ 6,568.69 CALCULATION OF TOTAL COST OF CAMERA 2 Year Cash Outflow PVF @ 9% Present Value 0 4800 1.0000 $ 4,800.00 1 0.9174 $ - 2 0.8417 $ - 3 830 0.7722 $ 640.91 4 0.7084 $ - 5 900 0.6499 $ 584.94 6 0.5963 $ - 7 1000 0.5470 $ 547.03 8 0.5019 $ - Total Cost $ 6,572.88 TOTAL COST CAMERA 1 6,568.69 CAMERA 2 6,572.88
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