The Best Company Is Reviewing Two Options for Replacing a Piece

question 288

Multiple Choice

The Best Company is reviewing two options for replacing a piece of machinery. The first machine costs $86,500 and has a four-year life. The second machine costs $123,000 and has a six-year life.
Neither machine will have a salvage value. The machines will be replaced at the end of their life.
What method should be used to determine which machine to purchase?

• A) Net present value
• B) Internal rate of return
• C) Accounting rate of return
• D) Total cash flows
• E) Equivalent annual cost