Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm€™s new plasma cutter shop. The two alternatives that are denoted A and B below perform the same task and although they both cost $80,000 to purchase and install they offer very different cash flows. Alternative A has a useful life of seven years whereas Alternative B will only last for three years. The after-tax costs for the two projects are as follows:

a. Calculate each project€™s equivalent annual cost (EAC) given a 10 percent discount rate.
b. Which of the alternatives do you think Barry should select?Why?

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YearAlternative A Alternative B $(80,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) $(80,000) (6,000) (6,000) (6,000)