Comparing projects with unequal economic life.

Rollon Inc. is comparing the operating costs of two types of equipment. The standard model costs $$50,000$ and will have a useful life of four years. Operating costs are expected to be $$4,000$ per year. The superior model costs $$90,000$ and will have a useful life of six years. Its operating costs are expected to be $$2,500$ per year. Both models will be able to operate at the same level of output and quality and generate the same cash earnings. Rollon's cost of capital is $8$ percent.

a$.$ Compute the present values of the cash costs over the useful life of each model.

b$.$ Can the two present values be compared? If not, why not?

c$.$ What is the annuity$-$equivalent cost of each model?

d$.$ Which model should the company purchase? Explain.