Rollerblade, a Maker of Skating Gear, Is Evaluating Two Alternative

question 3

Multiple Choice

Rollerblade, a maker of skating gear, is evaluating two alternative presses.Press A costs $88,000, has a 4 year life, and is expected to generate annual cash inflows of $30,100 in each of the 4 years.Press B costs $122,000, has an 8 year life, and is expected to generate annual cash inflows of $24,600 in each of 8 years.The cost of replacement for A is $96,000 and the replacement press will generate cash inflows of $30,100 for another 4 years.Rollerblade uses a 12% cost of capital.Which press should be chosen?

• A)A
• B)B
• C)both A and B
• D)neither A or B

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Definitions:

Type I Error

A statistical mistake made when a true null hypothesis is incorrectly rejected.

Type II Error

A statistical mistake that occurs when a false null hypothesis is not rejected, erroneously indicating no effect or difference when one does exist.

True Average Age

The actual mean age of a group or population, accurately representing the central tendency without bias.

Sample Size

The number of observations or units in a sample taken from a population for the purpose of statistical analysis.