Your boss asks you to evaluate the purchase of a new battery-operated toaster for his restaurant chain.
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Question:
Your boss asks you to evaluate the purchase of a new battery-operated toaster for his restaurant chain. The toaster [ BT ] costs $22 per unit, and has an estimated useful life of six years. The toaster requires batteries once a week yielding an annual operating cost of $96 per year; salvage value of both toaster and batteries is $12. The alternative is to purchase an electric toaster [ ET ] that will last seven years and costs $150. The estimated annual electric bill for this toaster is $60, and it has an expected salvage value of $11. If the company anticipates purchase of 10000 toasters for eternity, which model should you recommend? (Assume a tax rate of 35% and a WACC of 9%.)
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