Compute the equivalent annual cost

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Reference no: EM13257149

The Philadelphia Pretzel Company is considering the purchase of a new pretzel twister. The revenues are expected to be the same no matter which machine is acquired. The Knot-Me machine has a cost of $100,000 and is expected to last 5 years with operating costs of $15,000 per year. The Doughboy machine has a cost of $80,000 and operating costs of $18,000 per year but will last for only 4 years. The discount rate is 8%. Ignore taxes and compute the equivalent annual cost (EAC) of each machine to the nearest dollar. Which one should be chosen, and why?

Reference no: EM13257149

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