Problem:
Compare the equivalent annual costs for 2 pumps. The minimum attractive rate of return is 12%.
First cost of PUMP A is $8000
First cost of PUMP B is $6000
Salvage of PUMP A is zero
Salvage of PUMP B is zero
Life span of PUMP A is 8 years
Life span of PUMP B is 8 years
Annual repair costs of PUMP A is $500
Annual repair costs of PUMP B is $800
Annual operating costs of PUMP A is $1500
Annual operating costs of PUMP B is $1800
Use equivalent annual cost method.