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 $150 initially, and then $105 per year in maintenance costs. Machine B costs $220 initially, has a life of three years, and requires $170 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.

The discount rate is 13 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.)

Explanation / Answer

EAC of machine 1=(150+105/1.13+105/1.13^2)/(1/1.13+1/1.13^2)=194.922

EAC of machine 2=(220+170/1.13+170/1.13^2+170/1.13^3)/(1/1.13+1/1.13^2+1/1.13^3)=263.17488

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