Your boss asks you to evaluate the purchase of a new battery-operated toaster for his restaurant chain. The toaster [ BT ] costs $80 per unit, and has an estimated useful life of six years. The toaster requires batteries once a week yielding an annual operating cost of $120 per year; salvage value of both toaster and batteries is $9. The alternative is to purchase an electric toaster [ ET ] that will last seven years and costs $160. The estimated annual electric bill for this toaster is $100, and it has an expected salvage value of $11. If the company anticipates purchase of 10000 toasters for eternity, which model should you recommend? (Assume a tax rate of 35% and a WACC of 9%.)
2. If toaster BT's annual battery costs increase by $3 and ET's annual electric costs decrease by $3 which toaster would you recommend now?
3. If toaster BT's annual battery costs decrease by $7 and ET's toaster cost decrease by $7 which toaster would you recommend now?