You Are Evaluating Two Different Machines

question 121

Multiple Choice

You are evaluating two different machines.Machine A costs $10,000,has a five-year life,and has an annual OCF (after tax) of −$2,500 per year.Machine B costs $15,000,has a seven-year life,and has an annual OCF (after tax) of −$2,000 per year.If your discount rate is 14 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:

Monthly Payments

Regular payments made once a month as part of a financial agreement, such as a loan or mortgage.

Interest

The cost of borrowing money, typically expressed as a percentage of the amount borrowed.

Compounded Annually

Interest calculation method where the interest is calculated once a year and added to the principal sum, affecting the next year's interest calculation.

Quarterly Withdrawals

Periodic withdrawals from an investment or savings account that occur every three months.