DeCento's Is Analyzing Two Mutually Exclusive Machines to Determine Which

question 18

Multiple Choice

DeCento's is analyzing two mutually exclusive machines to determine which one it should purchase.Whichever machine is purchased,it will be replaced at the end of its useful life.The company requires a return of 15 percent and uses straight-line depreciation to a zero book value over the life of the machine.Machine A has a cost of $386,000,annual operating costs of $29,000,and life of 4 years.Machine B costs $257,000,has annual operating costs of $19,000,and a life of 3 years.The firm currently pays no taxes.Which machine should be purchased and why?

• A)Machine A because it will save the company about $32,642 a year
• B)Machine A because it will save the company about $19,261 a year
• C)Machine B because it will save the company about $32,642 a year
• D)Machine B because it will save the company about $10,000 a year
• E)Machine B because it will save the company about $19,261 a year

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Definitions:

Sensation

The process by which our sensory receptors and nervous system receive and represent stimulus energies from our environment.

Nervous System

A complex network of nerves and cells that carry messages to and from the brain and spinal cord to various parts of the body.

Stimulus Energies

The physical or chemical forms of energy, such as light, sound, or touch, that can be detected and interpreted by sensory systems.

Psychophysics

The study of relationships between the physical characteristics of stimuli, such as their intensity, and our psychological experience of them.