Question: You are evaluating two machines. We assume neither machine has impacts on sales. Machine I costs $350,000 and it has a eight-year life. It has

You are evaluating two machines. We assume neither machine has impacts on sales.

Machine I costs $350,000 and it has a eight-year life. It has pre-tax operating costs of $280,000 per year.

Machine II costs $600,000 and it has a fifteen-year life. It has pre-tax operating costs of $180,000 per year.

For both machines, we use straight-line depreciation to zero over the machines life. The pre-tax salvage values of both Machine I and Machine II are assumed to be zero at the end of its life. The marginal tax rate is 30% and the appropriate discount rate is 12%.

What is the equivalent annual cost (EAC) for each machine?

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