OM Construction Company Must Choose Between Two Types of Cranes

question 46

Multiple Choice

OM Construction Company must choose between two types of cranes. Crane A costs
$600,000, will last for 5 years, and will require $60,000 in maintenance each year. Crane B costs $750,000 and will last for seven years and will require $30,000 in maintenance each year. Maintenance costs for cranes A and B are incurred at the end of each year. The appropriate discount rate is 12% per year. Which machine should OM Construction purchase?

• A) Crane A as EAC is $226,444
• B) Crane B as EAC is $194,336
• C) Crane A as the PV is $816,286
• D) Cannot be calculated as the revenues for the project are not given