Fresla Motors needs to select an assembly line for producing their new SUV. They have two...
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Fresla Motors needs to select an assembly line for producing their new SUV. They have two options: Option A is a highly automated assembly line that has a large up-front cost but low maintenance cost over the years. This option will cost $5 million today with a yearly operating cost of $2 million. The assembly line will last for 5 years and be sold for $4 million in 5 years. • • Option B is a cheaper alternative with less technology, a longer life, but higher operating costs. This option will cost $2 million today with an annual operating cost of $3 million. This assembly line will last for 8 years and be sold for $1 million in 8 years. The firm's cost of capital is 14%. Assume a tax rate of zero percent. The equivalent annual cost (EAC) of Option A is $_ million (Round your answer to 3 decimal places; for example, record $82.213943 million as 82.214 million). Fresla Motors needs to select an assembly line for producing their new SUV. They have two options: • Option A is a highly automated assembly line that has a large up-front cost but low maintenance cost over the years. This option will cost $5 million today with a yearly operating cost of $2 million. The assembly line will last for 5 years and be sold for $4 million in 5 years. Option B is a cheaper alternative with less technology, a longer life, but higher operating costs. This option will cost $2 million today with an annual operating cost of $3 million. This assembly line will last for 8 years and be sold for $1 million in 8 years. ● The firm's cost of capital is 14%. Assume a tax rate of zero percent. The equivalent annual cost (EAC) of Option B is S million (Round your answer to 3 decimal places; for example, record $82.213943 million as 82.214 million). Fresla Motors needs to select an assembly line for producing their new SUV. They have two options: Option A is a highly automated assembly line that has a large up-front cost but low maintenance cost over the years. This option will cost $5 million today with a yearly operating cost of $2 million. The assembly line will last for 5 years and be sold for $4 million in 5 years. • • Option B is a cheaper alternative with less technology, a longer life, but higher operating costs. This option will cost $2 million today with an annual operating cost of $3 million. This assembly line will last for 8 years and be sold for $1 million in 8 years. The firm's cost of capital is 14%. Assume a tax rate of zero percent. The equivalent annual cost (EAC) of Option A is $_ million (Round your answer to 3 decimal places; for example, record $82.213943 million as 82.214 million). Fresla Motors needs to select an assembly line for producing their new SUV. They have two options: • Option A is a highly automated assembly line that has a large up-front cost but low maintenance cost over the years. This option will cost $5 million today with a yearly operating cost of $2 million. The assembly line will last for 5 years and be sold for $4 million in 5 years. Option B is a cheaper alternative with less technology, a longer life, but higher operating costs. This option will cost $2 million today with an annual operating cost of $3 million. This assembly line will last for 8 years and be sold for $1 million in 8 years. ● The firm's cost of capital is 14%. Assume a tax rate of zero percent. The equivalent annual cost (EAC) of Option B is S million (Round your answer to 3 decimal places; for example, record $82.213943 million as 82.214 million).
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SOLUTION To calculate the equivalent annual cost EAC for each option we need to consider the initial cost operating costs salvage value and the cost of capital For Option A Initial cost 5 million Annu... View the full answer
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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