A university bought computers years ago worth P10M. Its annual operating cost is P2M. If it is going to be upgraded to have a new life of 4 more years and if is sold today, its price is P5M. Its salvage value is P300,000. Alongside with this, it will buy new medium-type computer at a cost of P5M, salvage cost of P500,000 and its annual operating cost is P1M. The medium-type computers are expected to last for 5 years. This is to be considered the 1st Option.
The 2nd Option is to buy larger computer, which has a cost of P7M, P750,000 salvage value, and P2M annual operating cost per year. It would last 6 years.
The last option is to lease a computer. The computer has annual payment of P3,160,003 per year and initial payment of P2,393,188. It would last 6 years.
Assume that the interest rate is 21% per year. What is the Annual Equivalent Cost of the Last Option?
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