The warmer months are coming, and you are considering buying an air-conditioning unit for your home.The Supersonic II has a price of $2,000 and will last for 8 years with annual maintenance costs of $50. A cheaper model is the Rustbucket V1 which only costs $1,100 but has an expected life of 5 years. It will require more repairs and maintenance at $150 per year. Your cost of capital is 9%pa, given as an effective annual rate.

Assume all cash flows occur at the end of the year.

Calculate the equivalent annual cost for each of the units.

The answers are given in the stated order:
Supersonic II; Rustbucket V1

a.

$284.59; $336.69

b.

$2,526.74; $1,933.45

c.

$411.35; $432.80

d.

$345.67; 243.95

e.

$2,276.74; $1,683.45