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equivalent annual cost over machine life calculation example

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Two machines, A and B, which perform the same functions, have the following costs and lives.

Type PV Costs Life
machine A $6000 5
machine B $8000 7

Which machine would you choose? Justify your decision. The two machines are mutually exclusive and the cost of capital is 15%.

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Solution Summary

Comparison of equivalent annual cost over machine life for two machines.

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Response:

To determine the best choice, calculate the equivalent annual cost for each scenario:

EAC(A) = $6,000/A5,15
EAC(B) = ...

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