Machine A
The Annual Variable Cost = 38% of $8.9 million = $3382000
Annual Fixed Cost = $153000
Total Operating Cost = $3535000
After tax operating Cost = 3535000* (1-0.35) = $2297750
Less: Depreciation tax benefit = 0.35* 2350000/8 = $102812.5
Total After tax Operating Cost = $2297750-$102812.5 = $2194937.50
Present value of All Costs = 2350000+ 2194937.50/0.1* (1-1/1.1^8) = $14059829.57
So, EAC/0.1* (1-1/1.1^8) = 14059829.57
=> EAC = 2635430.94 (Fourth option is correct , negative sign is because it is a cost )
Machine B
The Annual Variable Cost = 31% of $8.9 million = $2759000
Annual Fixed Cost = $102000
Total Operating Cost = $2861000
After tax operating Cost = 2861000* (1-0.35) = $1859650
Less: Depreciation tax benefit = 0.35* 4450000/12 = $129791.67
Total After tax Operating Cost = $1859650-$129791.67 = $1729858.33
Present value of All Costs = 4450000+ 1729858.33/0.1* (1-1/1.1^12) = $16236721.58
So, EAC/0.1* (1-1/1.1^12) = 14059829.57
=> EAC = 2382955.09 (Fifth option is correct , negative sign is because it is a cost )
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