ABC will be purchasing one of the two available models for its manufacturing equipment. Both equipment...

Transcribed Image Text:

ABC will be purchasing one of the two available models for its manufacturing equipment. Both equipment and the product being manufactured will have a life of 8 years. Details are as follows: Model X Model Y P420,000 60,000 30,000 30,000 Cost Salvage Value Annual operating cost Major repair cost, 6th year P 400,000 50,000 40,000 0 Required: If ABC requires has a cost of capital (discount rate) of 10%, compute the following: How much is the equivalent annual cost of Model X (4 points)? 4. 5. How much is the equivalent annual cost of Model Y (4 points)? 6. Which model should be chosen by ABC (2 points)? ABC will be purchasing one of the two available models for its manufacturing equipment. Both equipment and the product being manufactured will have a life of 8 years. Details are as follows: Model X Model Y P420,000 60,000 30,000 30,000 Cost Salvage Value Annual operating cost Major repair cost, 6th year P 400,000 50,000 40,000 0 Required: If ABC requires has a cost of capital (discount rate) of 10%, compute the following: How much is the equivalent annual cost of Model X (4 points)? 4. 5. How much is the equivalent annual cost of Model Y (4 points)? 6. Which model should be chosen by ABC (2 points)?

Answer rating: 100% (QA)

To calculate the equivalent annual cost EAC of each model you can use the following formula E... View the full answer