The provincial government's Ministry of Fisheries requires a new patrol boat. The price of a Songster is $90,000, and its annual operating costs will be $10,000. It will be sold for about $20,000 after five years, and replaced. A more durable and more efficient Boston Wailer, priced at $110,000, would cost $8000 per year to operate, last seven years, and have a resale value of $40,000. If the provincial government pays an interest rate of 6.5% compounded annually on its midterm debt, which boat has the lower equivalent annual cost?

Question

Quizplus · Accepted Answer

The Answer of The provincial government's Ministry of Fisheries requires a new patrol boat. The price of a Songster is $90,000, and its annual operating costs will be $10,000. It will be sold for about $20,000 after five years, and replaced. A more durable and more efficient Boston Wailer, priced at $110,000, would cost $8000 per year to operate, last seven years, and have a resale value of $40,000. If the provincial government pays an interest rate of 6.5% compounded annually on its midterm debt, which boat has the lower equivalent annual cost?

The Provincial Government's Ministry of Fisheries Requires a New Patrol