Hayden inc. has a number of copiers that were bought four years ago for $34,000. Currently...

 

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Hayden inc. has a number of copiers that were bought four years ago for $34,000. Currently maintenance costs $3,400 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $9,400. The machines have a current resale value of $9,400, but at the end of year 2 their value will have fallen to $4,900. By the end of year 6 the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $29,000, and the company can take out an eight-year maintenance contract for $1,600 a year. The machines will have no value by the end of the eight years and will be scrapped. Both machines are depreciated by using seven-year MACRS, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 9%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (ii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Equivalent Annual Cost ) Replaced now (i1) Replaced two years from now (iii) Replaced six years from now b. When should Hayden replace its copiers? Replace now O Replace in two years O Replace after six years Hayden inc. has a number of copiers that were bought four years ago for $34,000. Currently maintenance costs $3,400 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $9,400. The machines have a current resale value of $9,400, but at the end of year 2 their value will have fallen to $4,900. By the end of year 6 the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $29,000, and the company can take out an eight-year maintenance contract for $1,600 a year. The machines will have no value by the end of the eight years and will be scrapped. Both machines are depreciated by using seven-year MACRS, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 9%. a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (ii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Equivalent Annual Cost ) Replaced now (i1) Replaced two years from now (iii) Replaced six years from now b. When should Hayden replace its copiers? Replace now O Replace in two years O Replace after six years

Answer rating: 100% (QA)

Tax 35 Cash outflows saved on Operating costs Operating PVIF9 Present value 1000 0917 0842 0772 ... View the full answer