Millenium Corporation is considering the purchase of two machines for their ongo
ID: 2684155 • Letter: M
Question
Millenium Corporation is considering the purchase of two machines for their ongoing operations. When a machine is worn out, it will be replaced with another machine, since it is integral to the operations of the business. The discount rate is 8%. The CFO has collected the following information on two possible choices:
Machine A Machine B
Initial cost 210,000 180,000
Useful Life 17 years 20 years
Annual maintenance 1,500 3,000
Calculate the equivalent annual cost of each machine.
EAC A _______________ EAC B _________________
Which machine should Millenium Corporation choose? ____________
Explanation / Answer
Okay I will help you with this. Machine A = 210,000 + (17 * 1,500) = 235,500 Machine B = 180,000 + (20 * 3,000) = $240,000 Machine A EAC = 235,000/17 = $13,823.53 Machine B EAC = $240,000/20 = $12,000 Millenium Corporation choose Machine B. Hope this helps, best of luck.