Problem:
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $175 initially, and then $80 per year in maintenance costs. Machine B costs $245 initially, has a life of three years, and requires $195 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine.
Requirement:
Question: The discount rate is 11 percent and the tax rate is zero. Calculate the EAC.?
Note: Please provide reasons to support your answer.