In: Finance
European Products Company is considering two machines for purchase. The machine is integral to their business, so when it wears out, it will be replaced with a similar machine. The company uses a discount rate of 8% for their investments. Compute the equivalent annual cost of each machine.
Machine A Machine B
Initial cost 220,000 195,000
Useful Life 15 years 13 years
Annual maintenance 1,200 per year 2,100 per year
EAC of A ___________ EAC of B __________ Which should EPC choose? ______________