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April 19, 2014

Homework Help: Finance

Posted by John on Friday, April 8, 2011 at 12:29am.

(Break-even analysis) Acquiring more energy-efficient equipment would cost $80,000 now and yield savings of $20,000 in energy costs every year for the next 8 years, after which its salvage value will be 0. The discount rate is 8%.

(1) Based on a before-tax analysis, what is the economic break-even point for the yearly savings?

(2) You now realize that you forgot to consider something in part (1.1). If you acquire new energy-efficient equipment, you can dispose of some of your old equipment for a salvage value of $12,000. Taking this into consideration, redo part (1).

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