You are considering replacing an existing machine that will last for ten years with a newer, more efficient machine that will also last for ten years. You would sell the existing machine for $60,000 today if you purchased the new machine for $280,000. The existing machine would cost you $100,000 per year to operate while the new machine would only cost you $55,000 per year to operate. At the end of ten years, the existing machine would be worth only $5,000, while you could sell the more efficient machine for $30,000 at that time. Ignore income taxes!!

a. What is the Equivalent Uniform Annual Cost (EUAC) of operating the existing machine for the next ten years at 18% per annum? The EUAC is the level annuity payment that has the same present value as the machines various cash flows.

b. What is the Equivalent Uniform Annual Cost (EUAC) of operating the newer, more efficient, machine for the ten eight years at 18% per annum?

c. What is the present value (at 18%) of the difference between the two EUACs that you just computed in parts a and b?