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 $170 initially, and then $85 per year in maintenance costs. Machine B costs $240 initially, has a life of three years, and requires $190 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.)

You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $170 initially, and then $85 per year in maintenance costs. Machine B costs $240 initially, has a life of three years, and requires $190 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.

Explanation / Answer

All Amounts in $ For Machine A Asset Price = $ 170 + ($85 X 2) = $ 340 EAC based on the formula above = $ 201.18 For Machine B Asset Price = $ 240 + ($ 570 X 3) = $ 1,950 EAC based on the formula above = $ 811.88

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