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You have a choice between two pump systems. Pump #1 costs $15,000 to buy initially, is expected to need $2500 worth of service at the end of every 3 years, will have an annual utilities cost of $2000, and is expected to have a 12 year lifetime. Pump #2 costs $20,000 to buy initially, is expected to need $2500 worth of service at the end of every 4 years, will have an annual utilities cost of $1900, and is expected to have a 12 year lifetime. If you assume no inflation and an annual effective interest rate of 15% (equivalent to a required 15% rate of return), which pump should you buy?

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Financial Management, Finance

Category:- Financial Management
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