Reference no: EM133183859

Question - EQUIVALENT ANNUAL COST - Damai Laut Industries is evaluating two different machines for the production of its new product lines. Machine A costs RM480,000 and will last for 6 years. Variable costs are 40 percent of sales and fixed costs are RM80,000 per year. Machine B costs RM620,000 and will last for 8 years. Variable costs are 30 percent of sales and fixed costs are RM90,000 per year. The expected sales to be generated by each machine will be RM80,000 per year. The required rate of return is 10 percent and the tax rate is 30 percent. Both machines will be depreciated on a straight line basis to zero. Compute the equivalent annual cost (EAC) for both machines and justify which machine should be chosen by Damai Laut Industries.