Toni's Tools Is Comparing Machines to Determine Which One to Purchase

question 26

Multiple Choice

Toni's Tools is comparing machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs, differing machine lives, and will be replaced when
Worn out. These machines should be compared using:

• A) Net present value only.
• B) Both net present value and the internal rate of return.
• C) Their effective annual costs.
• D) The depreciation tax shield approach.
• E) The replacement parts approach.

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Definitions:

Capital Stock

The total amount of physical assets a company owns that can be used in the production of goods and services, including buildings, machinery, and equipment.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, decay, or a decline in value.

Gross Investment

The total amount of money spent on new capital assets, such as buildings and machinery, without deducting for depreciation.

Capital Stock

Capital stock represents the sum of all physical and financial assets owned by a company or country, used to facilitate production and operations.