You Are Evaluating Two Different Cookie-Baking Ovens

question 33

Multiple Choice

You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $25,000, has a six-year life, and has an annual OCF (after-tax) of −$5,000 per year. The Keebler Cookie Munster costs $40,000, has a seven-year life, and has an annual OCF (after-tax) of −$500 per year. If your discount rate is 10 percent, what is each machine's EAC?

• A) Pillsbury: −$11,594.9, Keebler: $8,716.22
• B) Pillsbury: −$11,594.94, Keebler: −$9,145.62
• C) Pillsbury: −$10,740.18, Keebler: −$9,145.62
• D) Pillsbury: −$10,740.18, Keebler: −$8,716.22

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Definitions:

Utility

A term in economics that refers to the total satisfaction received from consuming a good or service.

Satisfaction

The fulfillment of one's wishes, expectations, or needs, or the pleasure derived from this fulfillment.

Consumer

A person or collective who buys products or services for their own consumption.

Diminishing Marginal Utility

The principle that as a person consumes more of a product, there is a decline in the additional satisfaction or utility that person derives from consuming one more unit of the product.