Southport Astronomics needs to purchase of new paint dryer fortheir aluminum telescope tubes. - Alternative 1: Conventional
Question:
Southport Astronomics needs to purchase of new paint dryer fortheir aluminum telescope tubes.
- Alternative 1: Conventional Dryer will cost $95,000 and can beexpected to last 5 years, with a salvage value of $10,000. Cost ofelectricity used will be $22,000 per year. Maintenance Cost is willbe $1,000 per year. Additionally in year 3 its heating elementassembly will need to be replaced at a cost of $5000.
- Alternative 2: Convection Dryer will cost $140,000 and can beexpected to last 5 years, and will have a salvage value of $12,000.Cost of electricity used will be $10,000 per year. Maintenance Costwill be $1,500 per year. Additionally in year 3 its heating elementassembly will need to be replaced at a cost of $10000.
Assume the services provided by the dryers are identical; assumean interest rate of 10%.
Compare the annual equivalent costs of the 2 alternatives andmake a recommendation for selection.