Two Machines, a and B, Which Perform the Same Functions

question 62

Multiple Choice

Two machines, A and B, which perform the same functions, have the following costs and lives.

Which machine would you choose? The two machines are mutually exclusive and the cost of capital is 15 percent.

• A)Machine A, because the EAC is $1,789.89
• B)Machine B, because the EAC is $1,922.88
• C)Machine A, because it has lower PV costs
• D)Machine B, because it has longer life

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Definitions:

GAAP

Generally Accepted Accounting Principles; a collection of commonly-followed accounting rules and standards for financial reporting.

Business Combinations

Transactions in which one entity gains control over another and they are combined into one entity, often involving mergers, acquisitions, or consolidations.

Voting Common Stock

Shares in a company that grant the holder the right to vote on corporate matters, such as electing the board of directors.

Fair Value

The market price for divesting an asset or the obligation to liquidate a liability in a harmonious transaction among interchange participants at the established evaluation period.