Problem:
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $100 initially, and then $55 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $25 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.
Requirement:
Question: What is the EAC of the better machine for the firm? The discount rate is 10% and the tax rate is zero.
- -$85.32
- -$195.45
- -$112.62
- -$75.62
Note: Show supporting computations in good form.