You Are Evaluating Two Different Machines

question 69

Multiple Choice

You are evaluating two different machines. Machine A costs $25,000, has a five-year life, and has an annual OCF (after tax) of -$6,000 per year. Machine B costs $30,000, has a seven-year life, and has an annual OCF (after tax) of -$5,500 per year. If your discount rate is 10 percent, using EAC which machine would you choose?

• A)Machine A
• B)Machine B
• C)Both machines A and B
• D)Neither machine A nor B

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Definitions:

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than others, leading to more efficient trade possibilities.

Absolute Advantage

Absolute advantage refers to the ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.

Dishwashing

The process of cleaning cooking utensils, dishes, and other kitchenware, typically done manually by hand or using a dishwasher.

Absolute Advantage

The capacity of a nation, person, corporation, or area to generate a product or service at a cheaper per-unit expense than any other party.