(Related to Checkpoint 11.2) (Calculating EAC) 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 $95,000 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 follows: 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? Data Table a. Alternative A's EAC at a discount rate of 10% is $N. (Round to the n Year Alternative A Alternative B S(55,000) (6,500) (6,500) (6,500) S(95,000) (21,000) (21,000) (21,000) (21,000) (21,000) (21,000) (21,000) (Click on the icon D in order to copy its contents into a spreadsheet.) 1 2 3 4 5

(Related to Checkpoint 11.2) (Calculating EAC) 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 $95,000 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 follows: 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? Data Table a. Alternative A's EAC at a discount rate of 10% is $N. (Round to the n Year Alternative A Alternative B S(55,000) (6,500) (6,500) (6,500) S(95,000) (21,000) (21,000) (21,000) (21,000) (21,000) (21,000) (21,000) (Click on the icon D in order to copy its contents into a spreadsheet.) 1 2 3 4 5

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 25P

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