A local small business owner has asked for your help in selecting a new phone system. The alternatives she is considering are shown on the table below:
Plan A Plan B
Initial Investment $50,000 $120,000
Annual Maintenance Cost $9000 $6000
Salvage Value $10000 $20000
Life 20 years 40years
If the required return is 8%, depreciation is straight-line ,the annual tax rate is .4, and the phone system will be replaced, use the EAC method to find which system is best.
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