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Question Two (of 2) (35 points) Lotto Gelato Corporation is investigating possible replacements for its gelato machine. One possibility is the Super-Italomatic that costs $500,000 to acquire. Operating and maintenance (O&M) costs for this machine and its expected residual values, all after taxes, are: End of Year O&M Costs Residual Value 1 $50,000 $420,000 2 60,000 380,000 3 75,000 335,000 4 90,000 300,000 5 120,000 200,000 6 150,000 125,000 Lotto Gelato uses a 15% minimum acceptable rate of return to evaluate investment alternatives. Required: (Show your work for partial credit) a. Determine the Equivalent Uniform Cost (EUC) if Lotto Gelato acquires the machine, uses it and then sells it after: 1. One Year ii. Two Years iii. Three Years iv. Four Years v. Five Years vi. Six Years b. What is the economic life of this machine? Why did you choose this?

          Question Two (of 2)
(35 points)
Lotto Gelato Corporation is investigating possible replacements for its gelato machine. One possibility
is the Super-Italomatic that costs $500,000 to acquire. Operating and maintenance (O&M) costs for
this machine and its expected residual values, all after taxes, are:
End of Year
O&M Costs
Residual Value
1
$50,000
$420,000
2
60,000
380,000
3
75,000
335,000
4
90,000
300,000
5
120,000
200,000
6
150,000
125,000
Lotto Gelato uses a 15% minimum acceptable rate of return to evaluate investment alternatives.
Required: (Show your work for partial credit)
a. Determine the Equivalent Uniform Cost (EUC) if Lotto Gelato acquires the machine, uses it and
then sells it after:
1. One Year
ii. Two Years
iii. Three Years
iv. Four Years
v. Five Years
vi. Six Years
b. What is the economic life of this machine? Why did you choose this?

Question Two (of 2)
(35 points)
Lotto Gelato Corporation is investigating possible replacements for its gelato machine. One possibility
is the Super-Italomatic that costs 500,000 to acquire. Operating and maintenance (O M) costs for
this machine and its expected residual values, all after taxes, are:
End of Year
O M Costs
Residual Value
150,000
420,000
2
60,000
380,000
3
75,000
335,000
4
90,000
300,000
5
120,000
200,000
6
150,000
125,000
Lotto Gelato uses a 15% minimum acceptable rate of return to evaluate investment alternatives.
Required: (Show your work for partial credit)
a. Determine the Equivalent Uniform Cost (EUC) if Lotto Gelato acquires the machine, uses it and
then sells it after:
1. One Year
ii. Two Years
iii. Three Years
iv. Four Years
v. Five Years
vi. Six Years
b. What is the economic life of this machine? Why did you choose this?

Added by Trinidad M.

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