GoodEat Restaurant Inc. is considering replacing their refrigerators.
They currently have five small fridges, which they purchased for $1100 each, four years ago. Today, they would be able to sell them for $500 each. The estimated market value three years from now is $240 per fridge. The new refrigerator is much larger, and the restaurant would need only two new fridges to keep all their food at the right temperature. The new model costs $2000 each and its estimated market value three years from now is $800. The new model is also more energy efficient and each fridge will save the restaurant in their annual energy costs. However, after two years, an additional maintenance service is required, which will cost $640 in total. The fridges are in the asset class with a CCA rate of 20%. Assume the asset class remains open. The tax rate is 39% and the opportunity cost of capital is 12% per year. 

For which level of annual energy cost savings per fridge would the restaurant be indifferent between replacing the fridges and keeping the old ones?

Answer rating: 100% (QA)

Initial Cost of new fridges 2000 2 4000 Initial salvage value from old fridges 500 5 2500 Cur... View the full answer