OM Construction Company Must Choose Between Two Types of Cranes

question 40

Multiple Choice

OM Construction Company must choose between two types of cranes.Crane A costs $600,000, will last for five years, and will require $60,000 in maintenance each year.Crane B costs $750,000, will last for seven years, and will require $30,000 in maintenance each year.Maintenance costs for cranes A and B occur at the end of each year.The appropriate discount rate is 12 percent per year.Which machine should OM Construction purchase?

• A)Crane A, because EAC is $226,444
• B)Crane B, because EAC is $194,336
• C)Crane A, because its PV is $816,286 (i.e., less than the PV of Project B)
• D)The answer cannot be calculated because the revenues for the project are not given.

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