1. You are the project manager for Becker Enterprises, LTD. and have been asked to analyze         two alternatives for the company's newest plastics division. The two alternatives, A and B, will perform the same task, but Alternative A will cost $80,000 to purchase while Alternative B will cost only $55,000. Moreover, the two alternatives will have very different cash flows and useful lives. The after-tax costs for the two projects are as follows: (Marks: 10) 

 

Year				A			B
0				$(80,000)			$(55,000)
1				(20,000)			(6,000)
2				(20,000)			(6,000)
3				(20,000)			(6,000)
4				(20,000)
5				(20,000)
6				(20,000)
7				(20,000)

 

1. Calculate each project's EAC, given a 10% discount rate. 
2. Which of the alternatives do you think the company should select and why? 

Answer rating: 100% (QA)

To calculate each projects Equivalent Annual Cost EAC we need to discount each years cash flow to its present value using the given discount rate of 1... View the full answer