Question
Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. The company
Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. The company would need seven SALs, and each SAL costs $3,150 and requires $360 of maintenance each year. At the end of the computers eight-year life, each one could be sold for $175. Alternatively, the company could buy eight HALs. Each HAL costs $3,650 and requires $415 of maintenance every year. Each HAL lasts for six years and has a resale value of $170 at the end of its economic life. The company will continue to purchase the model that it chooses today into perpetuity, and the tax rate is 21 percent. Assume that the maintenance costs occur at year-end. Depreciation is straight-line to zero. What is the EAC of each model if the appropriate discount rate is 8 percent? (Your answers should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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