Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. The two alternatives that are denoted A and B below perform the same task and although they each cost to purchase and install they offer very different cash flows. Alternative A has a useful life of 7 years whereas Alternative B will only last for 3 years. The after-tax cash flows from the two projects are as follows:
ALTERNATIVE A: year 0 (95,000) year 1 (19,000) year 2(19,000) year 3 (19,000) year 4 (19,000) year 5 (19,000) year 6 (19,000) year 7 (19,000)
ALTERNATIVE B: year 0 (95,000) year 1 (5,000) year 2 (5,000) year 3 (5,000)
a. Calculate each project's equivalent annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)
a. Alternative A's equivalent annual cost (EAC) at a discount rate of 10% is:
b. Alternative B's equivalent annual cost (EAC) at a discount rate of 10% is