The warmer months are coming, and you are considering buying an air-conditioning unit for your home.The Supersonic II has a price of $2,000 and will last for 8 years with annual maintenance costs of $50. A cheaper model is the Rustbucket V1 which only costs $1,100 but has an expected life of 5 years. It will require more repairs and maintenance at $150 per year. Your cost of capital is 9%pa, given as an effective annual rate.

Required:

Assume all cash flows occur at the end of the year.

Calculate the equivalent annual cost for each of the units.

Answer rating: 100% (QA)

To calculate the equivalent annual cost for each unit we need to consider the initial cost maintenan... View the full answer