A Garage Is Comparing the Cost of Buying Two Different

question 105

Multiple Choice

A garage is comparing the cost of buying two different car hoists. Hoist A will cost $20,000, will require servicing of $1000 every two years, and last ten years. Hoist B will cost $15,000, require servicing of $800 per year, and last eight years. If the cost of capital is 7%, which is the better option, given that the firm has an ongoing requirement for a hoist?

• A) Hoist A, since it has a greater present value (PV).
• B) Hoist B, since it has a greater present value (PV).
• C) Hoist A, since it has a greater equivalent annual annuity.
• D) Hoist B, since it has a greater equivalent annual annuity.

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