Homework 3B: Capital Investment Problems

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Question

Jackson & Sons uses packing machines to prepare its products for shipping. They need to replace their primary packing machine and are considering two different options.

Machine 1 costs $404,700 and lasts 5 years before it needs replaced. The annual aftertax operating cost for the machine is $34,800.

Machine 2 costs $545,900 and should last for 7 years. It has an annual aftertax operating cost of $22,950.

What is the equivalent annual cost of each machine if the required return is 12 percent?

EAC for Machine 1 =

EAC for Machine 2 =