8.7 Machine I is the better buy. However, it's still better to keep the old machine going for 1 more year. That costs $4,300, which is less than I's equivalent annual cost, $6,019.

Transcribed Image Text:

Year: 0 1 2 3 PV of Costs H Cash flows $10,000 $1,100 $1,200 $11,992 Equivalent annual annuity 6,910 6,910 11,992 I Cash flows 12,000 1,100 1,200 $1,300 14,968 Equivalent annual annuity 6,019 6,019 6,019 14,968