(Calculating EAC) (Related to Checkpoint 11.2 on page 370) 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, denoted A and B below, will perform the same task, but alternative A will cost $80,000 to purchase, while alternative B will cost only $55,000. Moreover, the two alternatives will have very different cash flows and useful lives. The after-tax costs for the two projects are as follows:

a. Calculate each project’s EAC, given a 10 percent discount rate.

b. Which of the alternatives do you think Barry should select? Why?

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Year Alternative A Alternative B 0 $(80,000) $(55,000) 1 (20,000) (6,000) 234 (20,000) (6,000) (20,000) (6,000) (20,000) 5 (20,000) 6 (20,000) 7 (20,000)