Computation of equivalent annual cost

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Reference no: EM1313866

Computation of equivalent annual cost (EAC) for two machines.

You are evaluating two different machines. The first machine costs $290,000, has a three-year life, and has pre-tax operating costs of $67,000 per year. The second machine costs $510,000, has a five-year life, and has pre-tax operating costs of $35,000 per year. For both machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $40,000. If your tax rate is 35 percent and your discount rate is 10 percent, compute the equivalent annual cost (EAC) for both machines. Which do you prefer, and why?

Reference no: EM1313866

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