Question: Ruff Motors needs to select an assembly line for producing their new SUV. They have two options: - Option A is a highly automated assembly

 Ruff Motors needs to select an assembly line for producing their

Ruff 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 $7 million today with a yearly operating cost of $2 million. The assembly line will last for 5 years and be sold for $5 million in 5 years. - Option B is a cheaper alternative with less technology, a longer life, but higher operating costs. This option will cost $6 million today with an annual operating cost of $2.5 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 12%. Assume a tax rate of zero percent. 46. The equivalent annual cost (EAC) for Op tion A is $ million. 47. The equivalent annual cost (EAC) for Option B is $ million

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!