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?

  • CreatedOctober 31, 2014
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