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Machine X has an upfront cost of $379,500 and annual operating costs of $11,475 over its...

Machine X has an upfront cost of $379,500 and annual operating costs of $11,475 over its 4-year life. Machine Y costs $355,000 upfront and has annual operating costs of $5,740 over its 3-year life. Whichever machine is purchased will continue to be replaced at the end of its useful life. If the required return is 14.75% for both machine, what is the absolute value of the dollar difference between the EACs of the two machines?

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Expert Solution

Project A Year Cash flow × discount factor Present value
$     379,500 $ 379,500.00
1 $        11,475          0.871460 $    10,000.00
2 $        11,475          0.759442 $      8,714.60
3 $        11,475          0.661823 $      7,594.42
4 $        11,475          0.576752 $      6,618.23
Total          2.869477 $ 412,427.25
(a) EAC - A 412427.25/ 2.869477 $ 143,729.07
Project B Year Cash flow × discount factor Present value
$     355,000 $ 355,000.00
1 $          5,740          0.871460 $      5,002.18
2 $          5,740          0.759442 $      4,359.20
3 $          5,740          0.661823 $      3,798.86
Total          2.292725 $ 368,160.24
(b) EAC - B 368160.24/ 2.292725 $ 160,577.60
(a) - (b) $   (16,848.53)

Answer is 16,848.53

please rate.

jeff jeffy answered 1 year ago
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