Question 1

Hydrotech, an equipment costing $150,000 has a useful life of 6 years. It has a resale value of $18,000. Annual costs will be $15,000 for each of the year. Another equipment, Oxtech costing $130,000 has a useful life of seven years, after which time its estimated resale value will be $25,000. Annual costs will be $8,000 for the first three years and then $14,000 for each of the next four years. Compute the annual equivalent cost for each equipment using a discount rate of 10%. Which equipment will be your choice and why?