Precision Tool is analyzing two machines to determine which one it should purchase. The company requires a 15 percent rate of return. Machine A has a cost $892,000, annual operating costs of $28,200, and a 4 year life. Machine B costs $1,118,000, has annual operating costs of $19,500, and has a 5 year life. Whichever machine is purchased will be replaced at the end of its useful life. There are no Taxes.
(A) Calculate the Equivalent Annual Cost of the two machines.
(B) Which machine should the firm purchase?