Quick Wash Ltd, a suburban car washing franchise, is struggling to cope with the
demand following the introduction of water restrictions. The management is
considering the purchase of an additional washing bay and machine. Two models
have been evaluated as suitable for their needs. The ‘BloDry’ costs $60,000 to
purchase and $6,000 a year to operate. It has an economic life of seven years. The
other machine is the “RapidDry’, costing $90,000, with operating costs of only $4000
per year and a life of 10 years.
The relevant discount rate is 12 per cent.
Ignoring taxes and depreciation, compute the Annual Equivalent Cost (AEC) for both.
Which car washing machine should be purchased?