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What are the equivalent annual costs for both machines

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The equipment below is required for your business. Assume each will be replaced as it wears out and that straight-line depreciation to zero is used in each case. The required return is 8%. Taxes=35%.

                              Machine A                        Machine B

Initial cost              $100,000                   $132,000

Operating Cost/year   $5000                      $1000

Life                         10 yrs                       12 yrs

Question 1: Machine A also requires net working capital of $35,000 in years 0 and 1 while Machine B requires net working capital of $15,000 each in year 0. What are the equivalent annual costs (EAC) for both machines? Which machine would you recommend?

Reference no: EM132513592

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