The firm is considering two machines:   Machine A with initial investment of $10,000 and annual maintenance cost of $1,000. The life of the machine A is 4 years. Machine B with initial investment of $20,000 and annual maintenance cost of $800. The   life of the machine B is 6 years. If the required rate of return is 10%, calculate the equivalent annual cost (EAC) of each machine and which machine company must choose?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The firm is considering two machines:

 

Machine A with initial investment of $10,000 and annual maintenance cost of $1,000. The life of the machine A is 4 years. Machine B with initial investment of $20,000 and annual maintenance cost of $800. The

 

life of the machine B is 6 years. If the required rate of return is 10%, calculate the equivalent annual cost (EAC) of each machine and which machine company must choose?

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