Little Rhody Manufacturing needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $70,000 and is expected to last 6 years, and the second system costs $102,000 and is expected to last 9 years. Assume that the opportunity cost of capital is 12 percent. Which air-conditioning system should you purchase? Show your work. Hint: There are two ways to solve this. The hard way: Use formula for EAC The easy way: TMV exercise and solve for PMT assuming annual P/Y. Whichever has the lower PMT, go with that system. PV = cost. FV = 0, I/Y = 12%, N = Number of years. P/Y = 1

Little Rhody Manufacturing needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $70,000 and is expected to last 6 years, and the second system costs $102,000 and is expected to last 9 years. Assume that the opportunity cost of capital is 12 percent. Which air-conditioning system should you purchase? Show your work. Hint: There are two ways to solve this. The hard way: Use formula for EAC The easy way: TMV exercise and solve for PMT assuming annual P/Y. Whichever has the lower PMT, go with that system. PV = cost. FV = 0, I/Y = 12%, N = Number of years. P/Y = 1

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2TP: Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new...

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