Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star

Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need eight SALs, and each SAL costs $3,250 and requires $330 of maintenance each year. At the end of the computers seven-year life, Gold Star expects to sell each one for $220. Alternatively, Gold Star could buy six HALs. Each HAL costs $3,700 and requires $465 of maintenance every year. Each HAL lasts for five years and has a resale value of $210 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has tax rate of 38 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 11 percent? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

image text in transcribed

Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need eight SALs, and each SAL costs $3,250 and requires $330 of maintenance each year. At the end of the computer's seven-year life, Gold Star expects to sell each one for $220. Alternatively, Gold Star could buy six HALs. Each HAL costs $3,700 and requires $465 of maintenance every year. Each HAL lasts for five years and has a resale value of $210 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has tax rate of 38 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 11 percent? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16 EAC SAL 5000 HAL 1000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managing Currency Options In Financial Institutions

Authors: Yat-Fai Lam, Kin-Keung Lai

1st Edition

1138778052, 978-1138778054

More Books

Students also viewed these Finance questions