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You own a movie theatre and have to replace all the seats in the theatre. You have two choices. a. Option 1: You can spend
You own a movie theatre and have to replace all the seats in the theatre. You have two choices.
a. Option 1: You can spend $200000 on cheaper seats that will cost $10000 to clean each year and last four years.
b. Option 2: You can spend $400000 on better quality seats that will cost only $5000 to clean each year and last seven years.
The cost of capital is 8%.
What is the equivalent annuity for option 1?
Answer for part 1 What is the equivalent annuity for option 2?
Answer for part 2 Which project would you select?
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