What is the equivalent annual annuity for machine b

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Problem 1: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine A which has a cost of $185,000.00, a 5-year expected life, and after-tax cash flows (labor savings and depreciation) of $75,000.00 per year; and Machine B, which has a cost of $370,000.00, a 10-year life, and after-tax cash flows of $102,000.00 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 14.0%. What is the equivalent annual annuity for Machine B?

Option 1: $31,066
Option 2: $15,274
Option 3: $18,764
Option 4: $32,506
Option 5: $14,021

Reference no: EM132760995

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