Question

6A. You can continue to use your less efficient machine at a cost of $20,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $30,000 plus $10,000 annual maintenance. At a cost of capital of 15%, The EAC of the new machine will be ............... than that of the old machine by $............ greater/lower 6B. You can continue to use your less efficient machine at a cost of $10,000 annually for the next five years. Alternatively, you can purchase a 5-year more efficient machine for $15,000 plus $5,000 annual maintenance. At a cost of capital of 15%, you should: A) Buy the new machine and save $525 in equivalent annual costs. B) Keep the old machine and save $525 in equivalent annual costs. C) Keep the old machine and save $1933 in equivalent annual costs. Answer Dmthanamchinando1922 in slant earte

Answer 1

6A.

For the new machine, life time (nper)=5, Initial Investment (PV)=-30000, Annual Maintenance=-10000, rate=15%

B A 1 nper 2 PMT 3 PV 4 rate 5 FV B 5.00| FV -10000 rate -30000] nper 15.00% PMT |=FV(B4,B1,B2,B3,0) FV(rate, nper, pmt, [pv], [type])

_ A 1 nper 2 PMT 3 PV 4 rate 5 FV 5.00 -10000 -30000 15.00% $127,764.53

To calculate EAC:

DE D E F G FV $127,764.53 rate 15% nper PMT =PMT(E2,E3,0,1,0) PMT(rate, nper, pv, [fv], [type])

D FV $127,764.53 15% rate nper PMT ($18,949.47)

Hence, the EAC of the new machine will be lower than the old machine by (20000-18949.47)=$1050.53