Question

A firm is choosing between two machines. Machine X has a first cost of $5,000 and a useful life of 5 years. Machine Y has a first cost of $8,000; useful life of 12 years; salvage value of $2,000; maintenance cost of $150. Assume the minimum attractive return is 8%, which machine would you choose

Answer 1

Answer:

Machine Y

Explanation:

Machine X

EUAC = 5,000(A/P, 8%, 5)

EUAC = 5,000 (0.2505)

EUAC = $1252.50

Machine Y

EUAC = 8,000(A/P, 8%, 12) - 2,000(A/F, 8%, 12) + Maintenance cost

EUAC = 8,000(0.13269) - 2,000(0.0526) + 150

EUAC = $1061.52 - $105.20 + $150

EUAC = $1106.32

Conclusion: Machine Y will be chosen because it has the lesser Equivalent Uniform Annual Cost than Machine X