If Two Machines Produce the Same Product but Have Different

question 26

Multiple Choice

If two machines produce the same product but have different lives,you should choose the machine with the:

• A) highest IRR.
• B) longest life.
• C) lowest equivalent annual cost.
• D) highest NPV, discounted at the opportunity cost of capital.

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Definitions:

Measures Performance

The process of evaluating the efficiency and effectiveness of actions or operations, typically through quantitative metrics.

Flexible Budget

A budget that is stated as a function of some volume measure, such as units produced. Flexible budgets adjust for changes in volume.

Master Budget

A document that integrates all the estimates from the different departments to establish guidelines and benchmarks for the whole organization.

Favorable Variance

A financial term indicating that actual spending was less than budgeted amounts, or revenue was higher than expected.