The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets decline in value by

20

percent of current value each year.

Installation costs

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are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows.

Asset	First Cost	Initial Operating Cost	Rate of Operating Cost Increase	MARR
A	$120,000	$35,000	12.5%/year	5%
B	$120,000	$35,000	12.5%/year	25%

a. Determine the economic lives for assets A and B.

b. Create a diagram showing the EAC(capital), the EAC(operating), and the EAC(total) for assets A and B.

c. Explain the difference in economic life between A and B.