You are considering the purchase of one of two machines used in your manufacturi

Question

You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $140 initially, and then $115 per year in maintenance costs. Machine B costs $210 initially, has a life of three years, and requires $160 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 12 percent and the tax rate is zero. Calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) EAC Machine A $ Machine B $ Which one should you choose? Machine B Machine A

Explanation / Answer

EAC Machine A =- Annual Maintenance Cost - Initial Cost/PVIFA(rate,nper)

EAC Machine A = -115 - 140/PVIFA(12%,2)

EAC Machine A = -115 - 140/1.690051

EAC Machine A = -197.34

EAC Machine B =- Annual Maintenance Cost - Initial Cost/PVIFA(rate,nper)

EAC Machine B = -160 - 210/PVIFA(12%,3)

EAC Machine B = -160 - 210/2.401831

EAC Machine B = -247.43

Decision : Choose Machine A

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