You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $59,000, has a... Question: You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs$59,000, has a 5-year life, and has an annual OCF (after tax) of -$10,400 per year. The Keebler CookieMunster costs$92,000, has a 7-year life, and has an annual OCF (after tax) of -$8,400 per year. If your discount rate is 11%, what is each machine's EAC? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Effective Annual Cost (EAC): The effective annual cost covers a non-constant stream of costs associated with a project into an annuity of cost. In this way, the effective annual cost provides a straightforward assessment of the cost. Answer and Explanation: We can use the following formula to compute the equivalent annual cost: • {eq}\displaystyle \frac{F*r}{1 - (1 + r)^{-T}} + C {/eq} where {eq}F{/eq} is the initial cost, {eq}r{/eq} is discount rate, {eq}T{/eq} is the length of the project and {eq}C{/eq} is the annual cost. For Philsbury 707, • Cost =$59,000
• Life = 5 years
• Annual cost = - annual OCF = $10,400 The equivalent annual cost is: • {eq}\displaystyle \frac{59,000*11\%}{(1 - (1 + 11\%)^{-5})} + 10,400 =$26,363.65 {/eq}

• Cost = $92,000 • Life = 7 years • Annual cost = - annual OCF =$8,400

The equivalent annual cost is:

• {eq}\displaystyle \frac{92,000*11\%}{(1 - (1 + 11\%)^{-7})} + 8,400 = \$27,923.80 {/eq} 