Question: Cars R Us needs a new front-end alignment machine and is attempting to choose between two manufacturers models. Assume that the equipment will be replaced

Cars R Us needs a new front-end alignment machine and is attempting to choose between two manufacturers models. Assume that the equipment will be replaced as it wears out. The required return is 12%. Ignore taxes.

Machine A Machine B

Initial Cost $150,000 $175,000

Operating Cost/Year 7,000 9,000

Life 4 5

a. What is the equivalent annual cost of Machine A?

b. What is the equivalent annual cost of Machine B?

c. Which machine should they buy and why?

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