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A forklift will last for only 2 more years. It costs $5,800 a year to maintain.

ID: 2732740 • Letter: A

Question

A forklift will last for only 2 more years. It costs $5,800 a year to maintain. For $20,000 you can buy a new lift that can last for 9 years and should require maintenance costs of only $2,800 a year. a-1. Calculate the equivalent cost of owning and operating if the discount rate is 5% per year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent cost $ b-1. Calculate the equivalent cost of owning and operating if the discount rate is 14% per year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent cost $

Explanation / Answer

Calculate equivalent annual cost if discount rate is 5%:

Equivalent annual cost * Annuity factor (5%, 9 years) = $20,000

EAC*6.4632 = $20,000

EAC = $20,000/6.4632

EAC = $3094.44

Calculate equivalent annual cost if discount rate is 14%:

Equivalent annual cost * Annuity factor (14%, 9 years) = $20,000

EAC*4.639 = $20,000

EAC = $20,000/4.639

EAC = $4311.40

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