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Maintenance costs per annum throughout its useful life

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Metro Ltd operates a manufacturing business.A new machine is required due to increased demand for the company's products. The required rate of return is 10%. Metro Ltd has to choose between one of the following two options:

Machine A which has a useful life of seven years, costs $55,000 to purchase now and requires $6,000 in maintenance costs per annum throughout its useful life.

Machine B which has a useful life of 10years, costs$65,000 to purchase now and requires$4,000 in maintenance costs per annum throughout its useful life.

Use the Equivalent Annual Cashflow (EAC) method to determine which machine should be purchased.

Reference no: EM131190685

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