Discussion
Alternative A costs 20 000 with annual costs of 6000 over 10 years; B costs 35 000 with annual costs of 3500. At 10 per cent, A's equivalent annual cost is about
Answer: A
Correct answer: 9255
\[ EUAC_A = 20{,}000 \times (A/P, 10\%, 10) + 6{,}000 = 20{,}000 \times 0.16275 + 6{,}000 = 3{,}255 + 6{,}000 = 9{,}255. \] The two components pull in opposite directions between the alternatives: A is cheap to buy and dear to run, and B the reverse.
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