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 $65,000. 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 11 percent.

b. Which of the alternatives do you think Barry should select? Why?

Year Alternative A Alternative B 0 $(95,000) $(65,000) 1 $(17,000) $(8,000) 2 $(17,000) $(8,000) 3 $(17,000) $(8,000) 4 $(17,000) 5 $(17,000) 6 $(17,000) 7 $(17,000)