Problem $2(5$ points$)$:

Consider a factory that must have an air cleaner that is mandated by law. There are two choices:

The $$Cadillac cleaner$$ costs $$3,500$ today, has annual operating costs of $$120,$ and lasts $12$ years.

The $$Cheapskate cleaner$$ costs $$1,000$ today, has annual operating costs of $$480,$ and lasts $6$ years.

Assuming a $15\%$ discount rate and that factory will continue to operate for at least $12$ more years, what is the EAC for each of the air cleaner? Which one should we choose?

Problem $2$: EAC Calculation for Air Cleaners

Given Information:

$$ Cadillac Cleaner:

o Cost $=$ $$3,500$

o Operating Costs $=$ $$120/$year

o Life $=12$ years

$$ Cheapskate Cleaner:

o Cost $=$ $$1,000$

o Operating Costs $=$ $$480/$year

o Life $=6$ years

$$ Discount Rate $($r$)=15\%$