You Are Evaluating Two Different Machines

question 7

Multiple Choice

You are evaluating two different machines. Machine A costs $25,000, has a five-year life, and has an annual OCF (after-tax) of −$6,000 per year. Machine B costs $30,000, has a seven-year life, and has an annual OCF (after-tax) of −$5,500 per year. If your discount rate is 10 percent, using EAC which machine would you choose?

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

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Definitions:

Mechanism

A system of moving parts designed to perform a specific function within a larger machine or device.

Abbreviation

An abbreviated version of a word or phrase.

Bill of Materials

A comprehensive list of raw materials, components, and assemblies required to construct, manufacture, or repair a product or service.

Standard Parts

Components that are manufactured to a set specification and can be used interchangeably across different devices or assemblies.