Answer:
System A EAC = -$137,679.01
System B EAC = -$127,558.81
Explanation:
Denote i = discount rate = 8%; n= number of compounding period
For system A, the after tax cost of operation is 73,000 x (1-21%) = 57,670
- NPV of system A = -265,000 - [ 57,670/8%] / [ 1 - (1+8%)^-4] = -$456,010.3549
- EAC = ( NPV x i ) / [ 1 - (1+i)^-n) = (-456,010.3549 x 8%) / ( 1 - 1.08^-4) = -$137,679.01
For system B, the after tax cost of operation is 67,000 x (1-21%) = 52,930
- NPV of system B = -345,000 - [ 52,930/8%] / [ 1 - (1+8%)^-6] = -$589,689.0206
- EAC = ( NPV x i ) / [ 1 - (1+i)^-n) = (-589,689.0206 x 8%) / ( 1 - 1.08^-6) = -$127,558.81
