A company plans to purchase a new machine. There are two choices. The following are the...

50.1K

Verified Solution

Question

Finance

A company plans to purchase a newmachine. There are two choices. The following are the cash flowsfrom two machines:
     MachineA:    The machine’s initial purchaseprice is $99,718, and it has a singlemaintenance fee of $6,000 atthe end of year 4. The machine would last for 7 years. Assume thatthe discount rate is 8% for this machine.
     MachineB:    The machine’s initial purchaseprice is $10,000, and it has annualmaintenance cost of $10,000 atthe end of each year for 5 years. The machine would last for 5years. Assume that the discount rate is 10% for this machine.
    As a financial analyst assistant, youhave been asked to compute Equivalent Annual Annuity (EAA), alsocalled Equivalent Annual Cost (EAC). How much are the EAA of thesetwo machines?

Answer & Explanation Solved by verified expert

3.8 Ratings (731 Votes)

Machine AYearCostPresentValue 8 Cost108year0997180099718001234 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A company plans to purchase a newmachine. There are two choices. The following are the cash flowsfrom two machines: MachineA: The machine’s initial purchaseprice is $99,718, and it has a singlemaintenance fee of $6,000 atthe end of year 4. The machine would last for 7 years. Assume thatthe discount rate is 8% for this machine. MachineB: The machine’s initial purchaseprice is $10,000, and it has annualmaintenance cost of $10,000 atthe end of each year for 5 years. The machine would last for 5years. Assume that the discount rate is 10% for this machine. As a financial analyst assistant, youhave been asked to compute Equivalent Annual Annuity (EAA), alsocalled Equivalent Annual Cost (EAC). How much are the EAA of thesetwo machines?