You are evaluating two different machines. Machine X costs $400,000, has a four-year life, and has pretax operating costs of $20,000 per year. Machine W costs $500,000, has a five-year life, and has pretax operating costs of $25,000 per year. For both machines, use straight-line depreciation to zero over the projects life and assume a salvage value of $50,000. If your tax rate is 30% and your discount rate is 14 percent,

a) Compute the Equivalent Annual Cost (EAC) for both machines. Which do you prefer? Why? b) Assume that none of the machines will be replaced when it wears out. Which machine should you purchase and why?