Taser Company has to purchase some new equipment. Two manufacturers have provided the following information:
$$\begin{array} { l r r }
& \underline{\text { Equipment A }} & \underline{\text { Equipment B }} \
\text { Initial costs } & \$ 67,500 & \$ 90,000 \
\text { Estimated life } & 5 \text { years } & 5 \text { years } \
\text { Annual savings } & \$ 22,500 & \$ 24,000
\end{array}$$ Because the company requires a present value analysis, the following present value factors are furnished:
$$\begin{array} { c c c }
\underline{\text { Period }} & \underline{\text { Present Value of } \$ 1.00 @ 10 \%} & \underline{\text { Present Value of an Annuity of } \$ 1.00 @ 10 \%} \
1 & 0.90909 & 0.90909 \
2 & 0.82645 & 1.73554 \
3 & 0.75131 & 2.48685 \
4 & 0.68301 & 3.16987 \
5 & 0.62092 & 3.79079 \
\end{array}$$ Required:
a. Determine the present value of annual savings for each piece of equipment. Show your calculations clearly.
b. What is the payback for each piece of equipment? Show your calculations clearly.
c. Which investment is preferable? Why?

Question

Taser Company has to purchase some new equipment. Two manufacturers have provided the following information:
 $$\begin{array} { l r r } 
& \underline{\text { Equipment A }} & \underline{\text { Equipment B }} \
\text { Initial costs } & \$ 67,500 & \$ 90,000 \
\text { Estimated life } & 5 \text { years } & 5 \text { years } \
\text { Annual savings } & \$ 22,500 & \$ 24,000
\end{array}$$ Because the company requires a present value analysis, the following present value factors are furnished:
 $$\begin{array} { c c c } 
\underline{\text { Period }} & \underline{\text { Present Value of } \$ 1.00 @ 10 \%} & \underline{\text { Present Value of an Annuity of } \$ 1.00 @ 10 \%} \
1 & 0.90909 & 0.90909 \
2 & 0.82645 & 1.73554 \
3 & 0.75131 & 2.48685 \
4 & 0.68301 & 3.16987 \
5 & 0.62092 & 3.79079 \
\end{array}$$ Required:
a. Determine the present value of annual savings for each piece of equipment. Show your calculations clearly.
b. What is the payback for each piece of equipment? Show your calculations clearly.
c. Which investment is preferable? Why?

Quizplus · Accepted Answer

The Answer of Taser Company has to purchase some new equipment. Two manufacturers have provided the following information:
 $$\begin{array} { l r r } 
& \underline{\text { Equipment A }} & \underline{\text { Equipment B }} \
\text { Initial costs } & \$ 67,500 & \$ 90,000 \
\text { Estimated life } & 5 \text { years } & 5 \text { years } \
\text { Annual savings } & \$ 22,500 & \$ 24,000
\end{array}$$ Because the company requires a present value analysis, the following present value factors are furnished:
 $$\begin{array} { c c c } 
\underline{\text { Period }} & \underline{\text { Present Value of } \$ 1.00 @ 10 \%} & \underline{\text { Present Value of an Annuity of } \$ 1.00 @ 10 \%} \
1 & 0.90909 & 0.90909 \
2 & 0.82645 & 1.73554 \
3 & 0.75131 & 2.48685 \
4 & 0.68301 & 3.16987 \
5 & 0.62092 & 3.79079 \
\end{array}$$ Required:
a. Determine the present value of annual savings for each piece of equipment. Show your calculations clearly.
b. What is the payback for each piece of equipment? Show your calculations clearly.
c. Which investment is preferable? Why?

Taser Company Has to Purchase Some New Equipment Because the Company Requires a Present Value Analysis, the Following