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A firm is considering replacing the existing industrial air conditioning unit. They will pick one of...

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Finance

A firm is considering replacing the existing industrial airconditioning unit. They will pick one of two units. The first, theAC360, costs $26,225.00 to install, $5,116.00 to operate per yearfor 7 years at which time it will be sold for $7,059.00. Thesecond, RayCool 8, costs $41,570.00 to install, $2,133.00 tooperate per year for 5 years at which time it will be sold for$8,964.00. The firm’s cost of capital is 5.32%. What is theequivalent annual cost of the AC360?

Answer & Explanation Solved by verified expert
4.0 Ratings (715 Votes)
We first compute the NPV using excel NPV    See Answer
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A firm is considering replacing the existing industrial airconditioning unit. They will pick one of two units. The first, theAC360, costs $26,225.00 to install, $5,116.00 to operate per yearfor 7 years at which time it will be sold for $7,059.00. Thesecond, RayCool 8, costs $41,570.00 to install, $2,133.00 tooperate per year for 5 years at which time it will be sold for$8,964.00. The firm’s cost of capital is 5.32%. What is theequivalent annual cost of the AC360?

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