A restaurant chain believes it is time to replace ovens in 12 of their stores. The oven they are considering, called the "Red Fire," costs $34,225, fully installed. The chain doesn't believe the new ovens will have any impact on sales. However, the Red Fire ovens are more energy-efficient and easier to maintain, at will lower overall use and maintenance costs by $4,000 annually. The Red Fire ovens will be sold for approximately $5,000 each when they go out of warranty in 10 years, but will be depreciated to zero book value over 10 years via straight-line method. The chains marginal tax rate is 28% and the firm requires a return of 10% on all capital investments.

What is the equivalent annual cost (EAC) of one Red Fire oven?

Before the restaurant chain purchases the above machine, another sales rep approaches them with a less expensive machine called the "Burner." Although cheaper, the Burner has a shorter warranty. The Burner oven costs $23,000, fully installed. Again, the chain doesn't believe the ovens will have any impact on sales. This Burner will lower overall use and maintenance costs by $3,000 annually. The ovens will be sold for approximately $2,500 each when they go out of warranty in 6 years, but will be depreciated to $0 book value over 6 years via straight-line method. The chains marginal tax rate is 28% and the firm requires a return of 10% on all capital investments.

What is the equivalent annual cost (EAC) of one Burner oven?