Three years ago, a municipality purchased a pump for its sewage treatment plant for $1,300. This pump had annual operating costs of $1,000 and these are expected to continue. This pump is expected to continue to operate satisfactorily for 5 additional years, at which time it may be expected to have a negligible salvage value. The municipality has an opportunity to purchase a new pump for $2,000. The new pump is estimated to have a life of 5 years, negligible salvage value at the end of its life, and an annual operating cost of $400. If the new pump is purchased, the old pump will be sold for $100 and a sunk cost of $1,200 on it will be revealed. The interest rate is 6%.

a) What error in equivalent annual costs will result if the municipality includes the sunk cost in making a comparison of the financial desirability of the two pumps?

b) Calculate the comparative-use value of the old pump.