Problem 8-32 Equivalent Annual Annuity (LO5)

A precision lathe costs $21,000 and will cost $31,000 a year to operate and maintain. If the discount rate is 15% and the lathe will last for 4 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer as a positive value.)

	Equivalent annual cost

A firm can lease a truck for 3 years at a cost of $48,000 annually. It can instead buy a truck at a cost of $98,000, with annual maintenance expenses of $28,000. The truck will be sold at the end of 3 years for $38,000.

a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

	Equivalent annual cost

b. Which is the better option?

multiple choice

• Buy

• Lease