A forklift will last for only 2 more years. It costs $5,000 a year to maintain.

Question

A forklift will last for only 2 more years. It costs $5,000 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $2,000 a year.

Calculate the equivalent cost of owning and operating if the discount rate is 4% per year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Calculate the equivalent cost of owning and operating if the discount rate is 12% per year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A forklift will last for only 2 more years. It costs $5,000 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $2,000 a year.

Explanation / Answer

The maintenance cost is equal to the actual price of Forklift after 10 years,
If discount is 4%= $800
So, maintenance cost reduced =20,000-800=$19200
So, New Forklift must be buy which have less expense per year which about less then of the 10 year cost of maintenance then 2 years of old one.

If discount is 12%=$2400 (20,000x0.12)
Then, maintenance cost reduced = $17600
So, this is more appropriate to buy with 12% discount as this save $16,00

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