Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Related to Checkpoint 11.2) (Equivalent annual cost calculation) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative

image text in transcribed

(Related to Checkpoint 11.2) (Equivalent annual cost calculation) 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 that are denoted A and B below perform the same task and although they each cost to purchase and install they offer very different cash flows. Alternative A has a useful life of 7 years whereas Alternative B will only last for 3 years. The after-tax cash flows from the two projects are as follows:

a. Calculate each project's equivalent annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)

a. Alternative A's equivalent annual cost (EAC) at a discount rate of 10% is:

$

b. Alternative B's equivalent annual cost (EAC) at a discount rate of 10% is

$

b. Which of the alternatives do you think Barry should select? Why? (Select the best choice below.)

  1. This cannot be determined from the information provided.
  2. Alternative B should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative A.
  3. Alternative A should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative B.
  4. Alternative A should be selected because it has the highest NPV.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Business The Challenges Of Globalization

Authors: John J. Wild, Kenneth L. Wild

9th Edition

0134729226, 978-0134729220

More Books

Students also viewed these Finance questions

Question

What does the for-each element of an XSLT style sheet do?

Answered: 1 week ago

Question

Who do you usually turn to for help when facing a problem?

Answered: 1 week ago