Reference no: EM132487704
Amata Ltd is going to replace equipment that is in constant use and for which there is expected to continue to be use for the foreseeable future. Two types of machine are available with different capital costs, useful lives, scrap values and annual running costs.
Machine A will initially cost 480,000 €, have a life of 4 years, scrap value of 60,000 € and annual running costs of 72,000 €.
Machine B will initially cost 540,000 €, €, have a life of 3 years, scrap value of 120,000 € and annual running costs of 47,000 €.
Amata Ltd cost of capital is 10%. Assume all cash flows, except the initial capital cost, occur at the end of the relevant year and assume that taxation and inflation can be ignored.
4.1.1. What is the equivalent annual cost of machine B (to the nearest '000 €)?
Select one:
a. 142,000 €
b. 189,000 €
c. 179,000 €
d. 228,000 €