Consider the following two tractors a company can purchase. The following tables provide the costs the company will incur (in thousands of dollars) in the lifetime of each tractor.

Initial Cost Operating Costs per Year Expected Life Diesel $20,000 $11,000 6 Gasoline $7,000 $10,000 5

The transportation firm can only afford one of the tractors. The two tractors have identical production capabilities. The firm's cost of capital is 3%.

a. Find the present value of the costs of using the two tractors.

Diesel = Gasoline = b) Given that the net present value of the costs of the Diesel tractor are (A) and of the Gasoline tractor are (B), what are the equivalent annual costs for each machine?

EACDiesel= (AA)

EACGasoline= (BB) c) Given that the equivalent annual cost of the Diesel tractor is (AA) and of the Gasoline tractor if (BB), which tractor should the company buy?

Diesel OR Gasoline ?