Zoysia University must purchase mowers for its landscape department. The university can buy five EVF mowers that
Question:
Zoysia University must purchase mowers for its landscape department. The university can buy five EVF mowers that cost $6,800 each and have annual, year-end maintenance costs of $1,430 per mower. The EVF mowers will be replaced at the end of Year 4 and have no value at that time. Alternatively, Zoysia can buy six AEH mowers to accomplish the same work. The AEH mowers will be replaced after seven years. They cost $6,100 each and have annual, year-end maintenance costs of $1,570 per mower. Each AEH mower will have a resale value of $900 at the end of seven years. The university’s opportunity cost of funds for this type of investment is 9 percent. Because the university is a nonprofit institution, it does not pay taxes. It is anticipated that whichever manufacturer is chosen now will be the supplier of future mowers. Would you recommend purchasing five EVF mowers or six AEH mowers?
Step by Step Answer:
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan