Question

6) Bad Company has to pick between two different machines that perform the same function, but have different lifespans. Machine A costs $20,000 and has a three-year life with doperating costs of $5,000 a year. Machine B costs $15,000 and has a two-year life and operating costs of $7,000 a year. The opportunity cost of capital is 10%. Egoing annoy connuity a) What is the present value of the collective costs of Machine A? b) What is the present value of the collective costs of Machine B? c) What is the Equivalent Annual Annuity of Machine A? d) What is the Equivalent Annual Annuity of Machine B? e) Which machine should you pick?
I NEED A FULL STEP BY STEP PROCESS TO COMPLETION USING THE FORMULAS FROM "equivalent annual annuity chapter"

Answer 1

a) Initial cost =20000
Number of Years =3
Rate =10%
Operating costs per year =5000
PV of costs =Initial Cost +Operating Costs*((1-(1+r)^-n)/r =20000+5000*((1-(1+10%)^-3)/10% =32434.2599

b) Initial cost =15000
Number of Years =2
Rate =10%
Operating costs per year =7000
PV of costs =Initial Cost +Operating Costs*((1-(1+r)^-n)/r =15000+7000*((1-(1+10%)^-2)/10% =27148.7603

C)Equivalent annual annuity of A =PV of Costs of A/((1-(1+r)^-n)/r) =32434.2599/((1-(1+10%)^-3)/10%)=13042.30

d)Equivalent annual annuity of B =PV of Costs of A/((1-(1+r)^-n)/r) =27148.7603/((1-(1+10%)^-2)/10%)=15642.86

e)Machine A should be chosen because its has low equivalent annual cost