A craft brewery operation is examining two alternatives for the purchase of bottling line equipment. The price of the most automated equipment is $285,000, has annual operating costs of $32,000, and...

A craft brewery operation is examining two alternatives for the purchase of bottling line equipment. The price of the most automated equipment is $285,000, has annual operating costs of $32,000, and will have a resale value after a 10-year lifespan of $45,000. The price of less automated equipment is $90,000, has annual operating costs of $55,000, and will be sold for $10,000 after a 7-year lifespan and replaced.


a) If the company’s cost of capital is 5% compounded annually, which equipment alternative has the lower equivalent annual cost?