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You need a new oven for your bakery

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You need a new oven for your bakery. Your current oven is worn out so you are trying to decide which one of two ovens to buy as a replacement. Whichever oven you purchase will be replaced after its useful life. Oven A costs $25,000 and costs $3,000 a year to operate over an 8-year life. Oven B costs $20,000 and costs $4,500 a year to operate over a 6-year life. Given this information, which one of the following statements is correct if the applicable discount rate is 10 percent?

A)The equivalent annual cost of oven A is -$7,481.

B)The equivalent annual cost of oven B is -$8,209.

C)Oven A lowers the annual cost by $1,406 as compared to oven B.

D)Oven B lowers the annual cost by $1,598 as compared to oven A.

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EAC for Oven A is -$7,686.10 and EAC for Oven B is $9,092.15 So, Difference in EAC is $1,406.05 or $1,406.

The correct option is C "Oven A lowers the annual cost by $1,406 as compared to oven B".

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