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

question 50

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%.

• A) Machine A as the EAC is $1789.89
• B) Machine B as the EAC is $1922.88
• C) Don't buy either machine
• D) Accept both A and B

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Definitions:

Cumulative

This term refers to the total amount accumulated over a period of time, often used in the context of dividends or other figures that add up over multiple periods.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock that must be paid out before any dividends can be issued on common stock.

Preferred Shareholders

Investors who own preferred shares of a company, which typically offer dividends before common stock and have priority in asset liquidation.

Voting Rights

The rights of shareholders to vote on corporate matters, typically exercised at annual meetings.