Assume that the opportunity cost of capital is 10 percent, Accounting Basics

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Assume that the opportunity cost of capital is 10 percent

Problem

You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,300 and is expected to run for 7 years; model B is more expensive, with a price of $15,900 and has an expected life of 10 years. The annual maintenance costs are $810 for model A and $720 for model B. Assume that the opportunity cost of capital is 10 percent. Calculate EAC for both the models and choose which one should you buy?

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Accounting Basics: Assume that the opportunity cost of capital is 10 percent

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