36

Signura Signs, Inc. is considering the purchase of a new machine for its production facility. There are two options: the Delivia-Q5 or the Elexeos-P7. The Delivia-Q5 will cost $125,000 today and it will cost $16,000 per year to operate for each of the next 5 years. Signura believes that they will be able to sell the Delivia-Q5 at the end of its life in 5 years for $25,000. The Elexeos-P7 will cost $192,500 today and it will cost $6,000 per year to operate for each of the next 7 years. Signura believes that they will be able to sell the Elexeos-P7 at the end of its life in 7 years for $5,000. Because the expected annual revenue generated by each machine is the same, Signura Signs only needs to compare the equivalent annual cost (EAC) of each machine to determine which is the better choice. Using a discount rate of 9.25% p.a., what is the EAC of the better machine