Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system.
Question:
Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $31,000, a remaining life of 8 years, and an estimated salvage value of $5,800 at that time.
A new system can be purchased for $237,000; it will be worth $26,000 in 8 years; and it will have annual operating and maintenance costs of $19,000/year . If the new system is purchased, the old system can be traded in for $21,000.
Leasing a new system will cost $22,000/year , payable at the beginning of the year, plus operating costs of $8,400/year , payable at the end of the year. If the new system is leased, the old system will be sold for $9,400.
MARR is 14%. Compare the annual worths of keeping the old system, buying a new system, and leasing a new system based upon a planning horizon of 8 years.
What is the EUAC of the best option using the cash flow approach?
Financial Management Principles and Applications
ISBN: 978-0134417219
13th edition
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin