Anderson Inc. needs to replace their rapid prototyping machine.

They can purchase an injection molding based machine at a cost of $700,000. This machine will reduce before tax operating expenses by $100,000 per year, This machine will be depreciated to a value of zero on a straight line basis for seven years and will need to be replaced after seven years and will be scrapped as worthless. Alternatively they can buy a layering based machine at a cost of $350,000. This machine will reduce before tax operating expenses by $55,000 per year. This machine will be depreciated to a value of zero on a straight line basis over four years and will need to be replaced after four years and will be scrapped as worthless.

If Anderson has a 20% tax rate and a 12% cost of capital which machine do they prefer?

In the space below provide the Equivalent Annual Annuity of each option and identify which is the best choice.