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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