In the country of Namma Nadu, the nominal interest rate is $12\%,$ and inflation is $7\%$ and is

expected to remain at the same level for the foreseeable future. The corporate tax rate is $30\%.$

Use this information in answering the questions below.

$($a$)$ The real after$-$tax cash flows associated with the purchase and operating machines A and

$B$ are given in the table below. The volume and quality of production from Machines A

and B are identical. Find the Equivalent Annual Cost $($EAC$)$ of Machines A and B$.$ Which

machine would you recommend?

$($b$)$ A machine with an equivalent annual cost of Rs$.20$ has been purchased by your firm. The

machine is then rented out by your firm to a customer. Your firm will bear the annual

operating cost of the machine. What will be the actual nominal rent $($or rupee payment$)$

that your firm should charge a customer in year $1?$