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You Are Evaluating Two Different Cookie-Baking Ovens

question 65

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You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $25,000, has a six-year life, and has an annual OCF (after tax) of -$5,000 per year. The Keebler CookieMunster costs $40,000, has a seven-year life, and has an annual OCF (after tax) of -$500 per year. If your discount rate is 10 percent, what is each machine's EAC?


Definitions:

Overjustification Effect

The tendency for salient rewards or threats to lead people to attribute the reason, or justification, for engaging in an activity to an external factor, which thereby undermines their intrinsic motivation for and enjoyment of the activity.

Intrinsic Enjoyment

The pleasure and satisfaction derived from engaging in an activity for its own sake, without any external rewards or pressures.

Extrinsic Reward

A reward that comes from an external source rather than from the intrinsic pleasure of the activity itself.

Overjustification Effect

A psychological effect whereby externally provided rewards can reduce a person's intrinsic motivation to perform a task, because the person comes to attribute their actions to the external rewards rather than their own interest in the task.

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