You Are Considering the Purchase of One of Two Machines

question 98

Multiple Choice

You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $20,000 initially, and then $4,000 per year in maintenance costs. Machine B costs $25,000 initially, has a life of three years, and requires $3,500 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Using EAC which is the better machine for the firm? The discount rate is 14 percent and tax can be ignored.

• A) Machine A
• B) Machine B
• C) All of these choices are correct.
• D) Neither machine A nor B

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Definitions:

Alternatives

Other options or choices available to decision-makers apart from the one currently under consideration.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to isolate the effect of one variable change.

Economic Analysis

A systematic approach to examining the allocation, distribution, and use of resources, often involving trade-off assessments and opportunity cost considerations.

Single Factor

A term in economics and production referring to the focus on one variable or input while analyzing its impact on an output or outcome.