You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,300 and is expected to run for 6 years; model B is more expensive, with a price of $15,800 and has an expected life of 9 years. The annual maintenance costs are $810 for model A and $740 for model B. Assume that the opportunity cost of capital is 9 percent. Calculate EAC for both the models and choose which one should you buy?
| The EAC of Model A is |
|
$ |
| The EAC of Model B is |
|
$ |
Since EAC is lower for Model A/Model B?, you should buy Model A/Model B?.