A company is trying to determine the optimal replacement cycle for the laptops used by its sales team. The following information is relevant to the decision:
The cost of each laptop is $2,400. Maintenance costs are payable at the end of each full year of ownership, but not in the year of replacement (e.g. if a laptop is owned for three years, then the maintenance cost is payable at the end of year 1 and at the end of year 2).
Interval between Trade-in value Maintenance cost
replacement (years) $ $
1 1200 Nil
2 800 75 (payable at end of Year 1)
3 To be determined 150 (payable at end of Year 2)
The company uses a relatively high discount rate of 14% as it faces capital rationing.
What is the year 3 trade-in value, given that the annual equivalent cost of a 3-year replacement cycle is $1,024?
A. $268
B. $301
C. $412
D. $727
The correct answer is B
Can you please explain me this question
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REPLACEMENT CYCLES
2y ago#1Where is the question from?
I really need to see it properly
It's from ACCA study hub
That's the exact question from the study hub including all info
2y ago#3All I can tell you
to (2400) * 1 (2400)
t1 Cost * 0.877
t2 Cost * 0.769
t3 Trade in value ??????? * 0.675
Which is the balancing figure from 2378 which is 2377/2.322 =
1024 EAC
years Trade-in value Maintenance cost
$ $
1 1200 Nil
2 800 75(payable at end of Year 1)
3 To be determined 150 (payable at end of Year 2)
These are the trade in values given
I tried formating it however when i send , it just becomes messy looking :/
2y ago#5I can't solve this unfortunately
The figures aren’t clear enough
Sorry!
Thats's okaaa
2y ago#7The answer in the study hub is as follows:
PV of costs over a 3-year cycle = $1,024 × 2.322 = $2,378
2,378 = 2,400 + (75 × 0.877) + (150 × 0.769) + (trade-in value × 0.675)
Rearranging, TiV = (2378-2400-(75*0.877)-(150*0.769))/0.675
Trade-in value = $301
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