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 $500000 on better quality seats that will cost only $6000 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?