Sam's Insurance must choose between two types of printers.Both printers meet the firm's quality standard.Printer A costs $3,500 and is expected to last 3 years with operating costs of $380 per year.Printer B costs $2,500 and is expected to last 2 years with operating costs of $400 per year.Assume a discount rate of 10%.Which printer should Sam's Insurance purchase? What is the equivalent annual cost of this machine?

Question

Quizplus · Accepted Answer

Present value of the cost of printer A = 3500 + 380/1.1 + 380/1.1² + 380/1.1³= $4,445 Present value of the cost of printer B = 2500 + 400/1.1 + 400/1.1² = $3,194 Suppose the EAC of printer A is x.Then x/1.1 + x/1.1² + x/1.1³= 4445 x = 1,787 Suppose the EAC of printer B is y.Then y/1.1 + y/1.1² = 3194 y = 1,840

Sam's Insurance Must Choose Between Two Types of Printers