Question
You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs
You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,000 and is expected to run for 6 years; model B is more expensive, with a price of $15,100 and has an expected life of 9 years. The annual maintenance costs are $800 for model A and $700 for model B. Assume that the opportunity cost of capital is 9 percent. Calculate EAC for both the models and choose which one should you buy? (Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.)
The EAC of Model A is
$= ______________
The EAC of Model B is
$________________
Since EAC is lower for
, you should buy
.
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