1. A firm is considering replacing the existing industrial air

1. A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,825.00 to install, $5,155.00 to operate per year for 7 years at which time it will be sold for $7,049.00. The second, RayCool 8, costs $41,931.00 to install, $2,055.00 to operate per year for 5 years at which time it will be sold for $9,091.00. The firm’s cost of capital is 5.63%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.

2. A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,885.00 to install, $5,087.00 to operate per year for 7 years at which time it will be sold for $7,178.00. The second, RayCool 8, costs $41,780.00 to install, $2,146.00 to operate per year for 5 years at which time it will be sold for $8,976.00. The firm’s cost of capital is 5.89%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes

3. A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,713.00 per year for 8 years and costs $104,037.00. The UGA-3000 produces incremental cash flows of $28,415.00 per year for 9 years and cost $123,025.00. The firm’s WACC is 7.57%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.

4. A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,113.00 per year for 8 years and costs $100,423.00. The UGA-3000 produces incremental cash flows of $27,531.00 per year for 9 years and cost $123,122.00. The firm’s WACC is 9.47%. What is the equivalent annual annuity of the UGA-3000? Assume that there are no taxes.

 

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