(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 $75,000 to purchase, while alternative B will cost only $65,000. 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 11 percent. b. Which of the alternatives do you think Barry should select? Why?
(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 $75,000 to purchase, while alternative B will cost only $65,000. 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 11 percent. b. Which of the alternatives do you think Barry should select? Why?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 8P: Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley...
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Transcribed Image Text:(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 andB below, will perform the same task, but alternative A will cost $75,000 to purchase, while
alternative B will cost only $65,000. 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 11 percent.
b. Which of the alternatives do you think Barry should select? Why?
Transcribed Image Text:Data Table
Year
Alternative A
Alternative B
S(75,000)
(16,000)
(16,000)
(16,000)
(16,000)
(16,000)
(16,000)
(16,000)
(Click on the icon O in order to copy its contents into a spreadsheet.)
S(65,000)
(7,000)
(7,000)
(7,000)
1
3
4
6
7
Print
Done
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