How do you calculate the Equivalent Annual Cost (EAC) for the two capping machines described in the chapter?

To calculate the Equivalent Annual Cost (EAC) for the two capping machines, first determine the present value of the total costs for each machine, including initial costs and annual operating costs. Then, divide the present value of costs by the annuity present value interest factor for the respective machine's lifespan and discount rate.

The EAC is calculated by first finding the present value of all costs associated with each machine. For the five-year machine, the present value of costs is calculated as -$41,978, while for the three-year machine, it is -$32,308. Next, the EAC is derived by dividing the present value of costs by the annuity present value interest factor. For the five-year machine, the EAC is -$10,514, and for the three-year machine, it is -$12,537. This allows for a comparison of the annual costs of operating each machine.