Question
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
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, Applying the rules of cost-benefit analysis, which option is best? Why is the best option?
A, Option 1 is the best option because it has a lower purchase price than Option 2.
B, Option 1 is the best option because it has a lower estimated annual cost of ownership than Option 2.
C, Option 2 is the best option because it has a lower estimated annual cost of ownership than Option 1.
D, Option 2 is the best option because it has a longer useful life than Option 1.
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