Equivalent annual cost calculation

Assignment Help Financial Management

Reference no: EM131336653

(Equivalent annual cost calculation) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. The two alternatives that are denoted A and B below perform the same task and although they each cost to purchase and install they offer very different cash flows. Alternative A has a useful life of 7 years whereas Alternative B will only last for 3 years. The after-tax cash flows from the two projects are as follows:

a. Calculate each project's equivalent annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)

a. Alternative A's equivalent annual cost (EAC) at a discount rate of 10% is: $

b. Alternative B's equivalent annual cost (EAC) at a discount rate of 10% is $

b. Which of the alternatives do you think Barry should select? Why? (Select the best choice below.)

This cannot be determined from the information provided.

Alternative B should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative A.

Alternative A should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative B.

Alternative A should be selected because it has the highest NPV.

Reference no: EM131336653

Questions Cloud

Analyze this case using timmons entrepreneurship framework : Analyze this case using the timmons entrepreneurship framework (entrepreneur-opportunity -resources). particularly note the entrepreneur"s traits and how he gathered resources for his venture.

Identify specific details to prepare and submit a proposal : Identify specific details to prepare and submit a proposal for the upgraded class. Using the "Final Project Proposal Template" from the Learning Resources, your proposal must include the following items.

What annuity payment must jeremy make : If the annuity requires that Jeremy make monthly investments, what annuity payment must Jeremy make to save $10,000?

Explain the process of finding your article : The article is an issue that is important and related to your health field (PUBLIC HEALTH). Explain the process of finding your article and how you determined it was peer-reviewed. NOTE: ARTICLE WAS FOUND IN SCHOOLS LIBRARY DATABAS

Equivalent annual cost calculation : (Equivalent annual cost calculation) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. Calculate each project's equivalent annual cost (EAC) gi..

Determine the annual financing cost : Determine the annual financing cost of a 6-month $20,000 discounted bank loan at a stated annual interest rate of 10 percent. Assume that no compensating balance is required.

Absolute value inequality to represent tolerance : Suppose 1.5" long bolts are made by another machine and have to be within 0.125" of 1.5". What is the absolute value inequality to represent this tolerance?

Determine wellsleys annual financing cost : The fee to the dealer for selling the issue would be $8,000. Determine Wellsley's annual financing cost of this commercial paper financing.

Remove the top five elements from the top of the stack : Pop the top three elements of the stack, add them, and push the resultback onto the stack.

User Account

All Pages