Question

A firm has two alternatives for the improvement of its current production system. The data are as follows:

Machine A                                                                 Machine B

First Cost – P6M First cost – P8,661,485

Annual operating cost – P250T Annual operating cost – P252,618

Service life – 4 years                                                  Service life – 6 years

Salvage value – P150T Salvage value – P100,424

Using the Annual Equivalent Cost (AEC) Method and with the firm’s interest rate of 23% cpd. annually, what the AEC of Machine B?

Answer 1