3. Equivalent annuity Company is considering the purchase of a new machine for the production of widgets. Machine Widget XS costs $260 000 and has three-year life. The annual cash operating costs (excluding depreciation) are $64 000 per year. Alternative machine Widget XL costs $450 000, has a five year life with the annual cash operating costs of $35 000 per year. For both machines, straight-line depreciation is used, The resulting book value will be zero for both machines but the salvage value is around 10% of the purchase price (e.g. this is the estimated market value). The tax rate is 30% and the cost of capital is 10%. Evaluate the after-tax cash flows for both alternatives and find the best alternative by considering equivalent annuities (more precisely equivalent annual cost, EAC). Focus