11.3

(Related to Checkpoint 11.2) (Calculating EAC) 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 $95,000 to purchase, while alternative B will cost only $50,000. 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 discount rate of 8 percent. b. Which of the alternatives do you think Barry should select? Why? \begin{tabular}{|ccc|} \hline Year & Alternative A & Alternative B \\ 0 & $(95,000) & $(50,000) \\ 1 & (17,000) & (5,000) \\ 2 & (17,000) & (5,000) \\ 3 & (17,000) & (5,000) \\ 4 & (17,000) & \\ 5 & (17,000) & \\ 6 & (17,000) & \\ 7 & (17,000) & \\ (Click on the icon Di in order to copy its contents into a spreadsheet.) \end{tabular}