A forklift will last for only 3 more years. It costs $6,000 a year to maintain.

Question

A forklift will last for only 3 more years. It costs $6,000 a year to maintain. For $17,000 you can buy a new lift that can last for 8 years and should require maintenance costs of only $3,000 a year. a-1. Calculate the equivalent cost of owning and operating the forklift if the discount rate is 5% per year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent cost $ a-2. Should you replace the forklift? Yes No b-1. Calculate the equivalent cost of owning and operating the forklift if the discount rate is 12% per year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent cost $ b-2. Should you replace the forklift? Yes No

Explanation / Answer

Year Dicounting @ 5% Dicounting @ 5% 0 0 1 0 17000 1 17000 1 6000 0.9524 5714.4 3000 0.9524 2857.2 2 6000 0.907 5442 3000 0.907 2721 3 6000 0.8638 5182.8 3000 0.8638 2591.4 4 3000 0.8227 2468.1 5 3000 0.7835 2350.5 6 3000 0.7462 2238.6 7 3000 0.7107 2132.1 8 3000 0.6768 2030.4 16339.2 36389.3 Equivalent Cost = 16339.2/Cumulative dicounting factor @5% for 3 Years 36389.3/Cumulative dicounting factor @5% for 8Years 6000 5630 So Better to go for New Lift

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.