The Steely Dan Distribution Company (SDDC) buys an amount of pretzels for $250,000 each year, which in turn, they sell to street pretzel vendors. SDDC is considering buying a pretzel making machine from Pretzel Logic, Inc. for $500,000 so that after paying for labor and materials, they produce the same amount of pretzels for $150,000 per year. The machine is expected to last for 15 years, at which time it can be salvage for $50,000. Assume an interest rate of 5%.
(a) What is the EUAC of SDDC making its own pretzels?
(b) Should Steely Dan buy the Pretzel Logic machine and make their own pretzels instead of buying them?