Use the information below to compare, on an annual basis, the cash purchase of a Washer/Dryer Combination. Assume both options yield the same basic benefits and that all items necessary for operation are included in the purchase price.

Read the assumptions for each option carefully.

Option 1: Top-Loading Combo

Purchase Price + tax = $800

Expected Useful Life = 10 years

Delivery & Installation = $75

Operating Costs = $75/year

Maintenance & Repair = 10% of purchase price/year

1 Year Full Warranty

Option 2:Front-Loading Combo

Purchase Price + tax = $1,320

Expected Useful Life = 12 years

Delivery & Installation = $75

Operating Costs = $50 per year

Maintenance & Repair = 5% of purchase price/year

2 year Full Warranty

The cash for the purchase is from a savings account that earns 1.2% annual interest, compounded monthly.

1.Calculate the following costs, on an annual basis, for Option 1 and Option 2.

a) Depreciation

b) Fees

c) Maintenance & Repair

d) Interest

e)Estimated Annual Cost of Ownership

2, Based on the analysis as demonstrated in the lecture, which option is best?

3, Why is the option identified in 2. the best option according to cost-benefit analysis?