You Are Considering the Purchase of One of Two Machines

question 69

Multiple Choice

You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance. Machine B has an initial cost of $90. It requires $40 in maintenance for each year of its 3 year life. Either machine must be replaced at the end of its life. Which is the better machine for the firm? The discount rate is 15% and the tax rate is zero.

• A) Machine A as EAC for Machine A is $100.76
• B) Machine B as EAC for Machine B is $79.42
• C) Machine A as PV of costs for Machine A is $163.80
• D) Machine B as PV of costs for Machine B is $181.33

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Definitions:

College Education

A postsecondary education program that leads to an academic degree or professional qualification, typically offered by colleges and universities.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor of production or resource.

Resource Price

The cost associated with acquiring a resource needed for production, such as labor, materials, or capital.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor, such as labor or capital.