You are evaluating two different cookie-baking ovens.The Pillsbury 707 costs $25,000,has a six-year life,and has an annual OCF (after tax)of −$5,000 per year.The Keebler CookieMunster costs $40,000,has a seven-year life,and has an annual OCF (after tax)of −$500 per year.If your discount rate is 10 percent,what is each machine's EAC?

Question

Quizplus · Accepted Answer

Using financial calculator: NPV of Pillsbury = −46,776.30; NPV of Keebler = −42,434.21;
Step 2: Find EAC of each: EAC of Pillsbury: I = 10; FV = 0; PV = −46,776.30; N = 6; PMT = EAC = −$10,740.18;
EAC of Keebler: I = 10; N = 7; PV = −42,434.21; FV = 0; PMT = EAC = −$8,716.22

You Are Evaluating Two Different Cookie-Baking Ovens