An investor is looking at purchasing a storage centre for his business and is evaluating two options.Option 1 is a storage centre that costs $200,000 has an estimated lifetime of 20 years and annual maintenance costs of $1000.Option 2 is a less expensive storage centre that costs $160,000 has an estimated lifetime of 14 years and annual maintenance costs of $2000.What is the absolute difference in the annual cost between Option 1 and Option 2? Assume the required return on his investments are j = 15% and there is no scrap value.(Answer to the nearest dollar).

Question

Quizplus · Accepted Answer

The annual cost for each option can be calculated using the formula for the annuity of the initial cost plus the annual maintenance cost. The absolute difference is then found by subtracting the annual costs of the two options.

An Investor Is Looking at Purchasing a Storage Centre for His