As an intern in a manufacturing company, you are assigned to evaluate two alternative production quality-tracking...

As an intern in a manufacturing company, you are assigned to evaluate two alternative production quality-tracking systems. System I costs $285 000 and has three-year life. The before-tax cash operating costs are $62 000 per year. System II costs $420 000, has a five year life with the after tax costs of $34 000 per year. For both systems, straight-line depreciation is used. The resulting book value will be zero for both systems but the estimated value is around 10% of the purchase price. The tax rate is 30% and the cost of capital is 10%. Evaluate the after-tax cash flows for both alternatives and find the best alternative by considering equivalent annuities (more precisely equivalent annual cost, EAC).

yes, it is ocf

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