SMU Inc. is considering two potential machines to produce their Mustang logo hats forever. The red machine has an equivalent annual cost of $75,000 per year. The blue machine would cost $100,000 to purchase, would cost $20,000 each year to maintain, and would last for 10 years. At the end of year 10, the blue machine could be sold for $10,000. Assume the appropriate discount rate is 10% and ignore taxes. What is the equivalent annual cost of the blue machine, and which machine should the company choose? $85,432... choose Blue Machine EAC blue machine Blue Machine EAC $82,390... choose red machine $35,647 ... choose Blue Machine EAC blue machine $15,783... choose Blue Machine EAC blue machine

Question

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SMU Inc. is considering two potential machines
to produce their Mustang logo hats forever. The
red machine has an equivalent annual cost of
$75,000 per year. The blue machine would cost
$100,000 to purchase, would cost $20,000 each
year to maintain, and would last for 10 years. At
the end of year 10, the blue machine could be
sold for $10,000. Assume the appropriate
discount rate is 10% and ignore taxes. What is
the equivalent annual cost of the blue machine,
and which machine should the company
choose?
$85,432... choose
Blue Machine EAC
blue machine
Blue Machine EAC $82,390... choose
red machine
$35,647 ... choose
Blue Machine EAC
blue machine
$15,783... choose
Blue Machine EAC
blue machine

Image Transcription

SMU Inc. is considering two potential machines to produce their Mustang logo hats forever. The red machine has an equivalent annual cost of $75,000 per year. The blue machine would cost $100,000 to purchase, would cost $20,000 each year to maintain, and would last for 10 years. At the end of year 10, the blue machine could be sold for $10,000. Assume the appropriate discount rate is 10% and ignore taxes. What is the equivalent annual cost of the blue machine, and which machine should the company choose? $85,432... choose Blue Machine EAC blue machine Blue Machine EAC $82,390... choose red machine $35,647 ... choose Blue Machine EAC blue machine $15,783... choose Blue Machine EAC blue machine

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