Toni\'s insurance must choose between two types of printers. Both printers meet
ID: 2739402 • Letter: T
Question
Toni's insurance must choose between two types of printers. Both printers meet the firm's quality standard Printer A costs $4, 445 and is expected to last 3 years. Printer B costs S3.194 and is expected to last 2 years. Assume a discount rate of 10%. Which printer should Toni's Insurance purchase? What is the equivalent annual cost (EAC) of this selected printer? Find EAC of A and EAC of B; Purchase the one with the lower EAC. Let X be the EAC of Printer A: $4, 445 = X/1.10 + X/1.10^2 + X/1.10^3 $ 4.445 = X (1/1.10 + 1/1.10^2 + 1/1.10)^3 X = 1.787.44 Or find an approximate value of X by using a financial calculator N - 3 FY = 10 PV = 4445 FV = 0 CPTPMT rightarrow 1.787.40 EAC of B is calculated similarly. Printer B; $3, 194 Printer A; S1.625 Printer B; $2, 904 Printer A; $1, 787Explanation / Answer
Compute the EAC of project B.
PV =4445
FV = 0
Nper = 3
Rate = 10%.
Compute Pmt using excel funtion.
Pmt = Pmt(Rate,Nper,PV,FV) = Pmt(10%,3,-4445,0) = $1787.40.
Therefore, EAC of project A = 1787.40.
Compute the EAC of project B.
PV =3194
FV = 0
Nper = 2
Rate = 10%.
Compute Pmt using excel funtion.
Pmt = Pmt(Rate,Nper,PV,FV) = Pmt(10%,2,-3194,0) = $1840.35
Therefore, EAC of project B = 1840.35.
COnclusion: EAC of project A is less than the project B. Therefore, Tony should purchase A.
Therefore, Correct answer is option D.