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1. A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,825.00 to install, $5,155.00 to operate per year for 7 years at which time it will be sold for $7,049.00. The second, RayCool 8, costs $41,931.00 to install, $2,055.00 to operate per year for 5 years at which time it will be sold for $9,091.00. The firm’s cost of capital is 5.63%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.
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Corporate Finance