Question
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 nine SALs, and each SAL costs $3,050 and requires $340 of maintenance each year. At the end of the computers eight-year life, Gold Star expects to sell each one for $220. Alternatively, Gold Star could buy eight HALs. Each HAL costs $3,350 and requires $305 of maintenance every year. Each HAL lasts for seven years and has a resale value of $160 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 34 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? |
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