Ruff Motors needs to select an assembly line for producing their new SUV. They have two...

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Finance

Ruff Motors needs to select an assembly line for producing theirnew SUV. They have two options:
Option A is a highly automated assembly line that has a largeup-front cost but low maintenance cost over the years. This optionwill cost $9 million today with a yearly operating cost of $2million. The
assembly line will last for 5 years and be sold for $5 millionin 5 years.
Option B is a cheaper alternative with less technology, a longerlife, but higher operating costs. This
option will cost $5 million today with an annual operating costof $2.5 million. This assembly line will last for 8 years and besold for $1 million in 8 years.
The firm’s cost of capital is 12%. Assume a tax rate of zeropercent. The equivalent annual cost (EAC) of better option shouldbe $_______ million.

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Ruff Motors needs to select an assembly line for producing theirnew SUV. They have two options:Option A is a highly automated assembly line that has a largeup-front cost but low maintenance cost over the years. This optionwill cost $9 million today with a yearly operating cost of $2million. Theassembly line will last for 5 years and be sold for $5 millionin 5 years.Option B is a cheaper alternative with less technology, a longerlife, but higher operating costs. Thisoption will cost $5 million today with an annual operating costof $2.5 million. This assembly line will last for 8 years and besold for $1 million in 8 years.The firm’s cost of capital is 12%. Assume a tax rate of zeropercent. The equivalent annual cost (EAC) of better option shouldbe $_______ million.