Question
There are two alternative machines for a manufacturing process. Both machines have the same output rate, but they differ in costs. Machine A costs $20,000
There are two alternative machines for a manufacturing process. Both machines have the same output rate, but they differ in costs. Machine A costs $20,000 to set up and $8,000 per year to operate. It must be completely replaced every 3 years, and it has no salvage value. Machine B costs $50,000 to set up and $2,160 per year to operate. It should last for 5 years and has no salvage value. The costs of two machines are shown below.
0 | 1 | 2 | 3 | 4 | 5 | ||
Machine A | 20,000 | 8,000 | 8,000 | 8,000 | |||
Machine B | 50,000 | 2,160 | 2,160 | 2,160 | 2,160 | 2,160 |
Assuming the cost of capital is 10%,
1. find the equivalent annual cost of Machine A in Box 1. Round it to a whole dollar, and no comma or the dollar sign.
2. find the EAC of Machine B in Box 2. The same format as box 1.
3. Based on the equivalent annual cost method, type in Box 3 which machine do you recommend, Machine A or Machine B.
***Need three answers
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