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Hydro One is evaluating buying two different transforms. Ø  Transformer #1: costs $370,000 has a 3 year...

Hydro One is evaluating buying two different transforms.

Ø  Transformer #1: costs $370,000 has a 3 year life, has pre-tax operating cost of $80,000 per year.

Ø  Transformer #2: costs $475,000 has a 5 year life, has pre-tax operating cost of $30,000 per year.

Ø  Both transformers are Class 8 (CCA rate of 20% per year) and both have a savage value of $40,000.

The firm’s tax rate is 35% and discount rate is 10%

What is the EAC for Transformer #2?


Select one:

a. $49,093.12

b. $111,872.11

c. $93,891.34

d. None of these.

e. $111,111.11

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