Question: Rib Wings R Us is considering the purchase of
Rib & Wings- R- Us is considering the purchase of a new smoker oven for cooking barbecue, ribs, and wings. It is looking at two different ovens. The first is a relatively standard smoker and would cost $ 50,000, last for 8 years, and produce annual cash flows of $ 16,000 per year. The alternative is the deluxe, award- winning Smoke- alator, which costs $ 78,000 and, because of its patented humidity control, produces the “moistest, tastiest barbecue in the world.” The Smoke-alator would last for 11 years and produce cash flows of $ 23,000 per year. Assuming a 10 percent required rate of return on both projects, compute their equivalent annual annuity (EAA).
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