Question
You are planning to purchase a range and have to make a choice among the following three models of the same type of equipment: Model
You are planning to purchase a range and have to make a choice among the following three models of the same type of equipment:
Model 1Model 2 Model 3
Cash cost $ 5,000$ 5,500 $ 5,300
Estimate life 5 years5 years 5 years
Trade-in value at end of life $ 1,000 $ 1,200 $ 800
Cash from sale of old machine$ 200$ 200 $ 200
Installation of new machine $80$ 120 $ 100
Initial training cost in Year 1 $ 350 $ 300 $ 325
Annual maintenance contract $ 275$ 300 $ 250
Annual cost of supplies $ 175$ 225 $ 200
Annual wage costs of employees $32,000$32,000$32,000
Using the concept of relevant costs over the five-year period, which model would be the best investment? (Note: In your calculations, ignore any costs that are not relevant.)
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