You Are Considering the Purchase of One of Two Machines

question 64

Multiple Choice

You are considering the purchase of one of two machines required in your production process.Machine A has a life of two years.Machine A costs $50 initially and then $70 per year in maintenance.Machine B has an initial cost of $90.It requires $40 in maintenance for each year of its three-year life.Either machine must be replaced at the end of its life.Which is the better machine for the firm? The discount rate is 15% and the tax rate is zero.

• A)Machine A as EAC for machine A is $100.76
• B)Machine B as EAC for machine B is $79.42
• C)Machine A as PV of costs for machine A is $163.80
• D)Machine B as PV of costs for machine B is $181.33Machine A: Annuity factor = (1/.15)× (1 - (1/(1.15^2)))= 1.6257.Machine B: Annuity factor = (1/.15)(1 - (1/(1.15^3)))= 2.2832.Costs:PV(A)= 50 + 70 (1.6257)= 163.80; EAC = 163.80/(1.6257)= 100.76;

Recognize the importance of financial planning and awareness of funding sources for small businesses.

Understand the operational and legal foundations of various business structures including sole proprietorships, partnerships, and corporations.

Comprehend the significance and process of creating mission statements for businesses.

Know the challenges and failure rates of small businesses and strategies to mitigate these risks.

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Definitions:

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