Depreciation is straight-line to zero

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Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the HAL 1000. Gold Star would need seven SALs, and each SAL costs $3,150 and requires $340 of maintenance each year. At the end of the computer’s nine-year life, Gold Star expects to sell each one for $215. Alternatively, Gold Star could buy six HALs. Each HAL costs $3,300 and requires $355 of maintenance every year. Each HAL lasts for seven years and has a resale value of $205 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has tax rate of 35 percent. Assume that the maintenance costs occur at year-end. Depreciation is straight-line to zero. What is the EAC of each model if the appropriate discount rate is 10 percent?

Reference no: EM131054589

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