Metro Ltd operates a manufacturing business.A new machine is required due to increased demand for the company's products. The required rate of return is 10%. Metro Ltd has to choose between one of the following two options:
Machine A which has a useful life of seven years, costs $55,000 to purchase now and requires $6,000 in maintenance costs per annum throughout its useful life.
Machine B which has a useful life of 10years, costs$65,000 to purchase now and requires$4,000 in maintenance costs per annum throughout its useful life.
Use the Equivalent Annual Cashflow (EAC) method to determine which machine should be purchased.