question archive Barry Boswell is a financial analyst for Dossman Metal? Works, Inc
Barry Boswell is a financial analyst for Dossman Metal? Works, Inc
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Barry Boswell is a financial analyst for Dossman Metal? Works, Inc. and he is analyzing two alternative configurations for the? firm's new plasma cutter shop. The two? alternatives, denoted A and B? below, will perform the same? task, but alternative A will cost ?$80,000 to? purchase, while alternative B will cost only$ 55,000.?Moreover, the two alternatives will have very different cash flows and useful lives. The? after-tax costs for the two projects are as ?followed.
.
|
Year |
Alternative A |
Alternative B |
|||
|
0 |
?$(80,000?) |
?$(55,000?) |
|||
|
1 |
?(20,000?) |
?(6,000?) |
|||
|
2 |
?(20,000?) |
?(6,000?) |
|||
|
3 |
?(20,000?) |
?(6,000?) |
|||
|
4 |
?(20,000?) |
||||
|
5 |
?(20,000?) |
||||
|
6 |
?(20,000?) |
||||
|
7 |
?(20,000?) |
||||
a. Calculate each? project's EAC, given a discount rate of
10 percent.
b. Which of the alternatives do you think Barry should? select? Why?
Option 1
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