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You can continue to use your less efficient old machine with a maintenance cost of $9,160 annually for the next five years (no initial cost).

You can continue to use your less efficient old machine with a maintenance cost of $9,160 annually for the next five years (no initial cost). Alternatively, you can purchase a more efficient new machine for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: (Please write down the calculation process.)

  • A. Buy the new machine and save $580 in equivalent annual annuity.
  • B. Buy the new machine and save $380 in equivalent annual annuity.
  • C. Keep the old machine and save $600 in equivalent annual annuity.
  • D. Keep the old machine and save $480 in equivalent annual annuity.
  • E. Keep the old machine and save $380 in equivalent annual annuity.

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