You Can Continue to Use Your Less Efficient Machine at a Cost

question 35

Multiple Choice

You can continue to use your less efficient machine at a cost of $8,000 annually for the next five years.Alternatively, you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance.At a cost of capital of 15 percent, you should:

• A)buy the new machine and save $600 in equivalent annual costs
• B)buy the new machine and save $388 in equivalent annual costs
• C)keep the old machine and save $388 in equivalent annual costs
• D)keep the old machine and save $580 in equivalent annual costs

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Definitions:

Surplus

An excess amount of a commodity or resource beyond what is needed or utilized.

Quantity Supplied

In economic terms, this is the amount of a good or service that producers are willing and able to sell at a given price over a specific time period.

Surplus

The amount of an asset or resource that exceeds the portion used. In economics, it refers to a situation where supply exceeds demand.

Shortage

A situation in which demand for a good or service exceeds the available supply at the current price.