You Are Trying to Pick the Least-Expensive Machine for Your

question 106

Multiple Choice

You are trying to pick the least-expensive machine for your company.You have two choices: machine A,which will cost $100,000 to purchase and which will have OCF of −$7,000 annually throughout the machine's expected life of three years; and machine B,which will cost $125,000 to purchase and which will have OCF of −$2,600 annually throughout that machine's four-year life.Both machines will be worthless at the end of their life.If you intend to replace whichever type of machine you choose with the same thing when its life runs out,again and again out into the foreseeable future,and if your business has a cost of capital of 15 percent,which one should 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:

Amputation

The surgical removal of a body part, typically a limb or extremity, due to injury, disease, or surgery.

Social Control Theory

A theory of crime, proposed by Travis Hirschi, that posits that strong social bonds increase conformity and decrease deviance.

Travis Hirschi

A criminologist who developed the Social Control Theory, proposing that strong bonds to society encourage conforming behavior and reduce the likelihood of deviance.

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A violation of a norm that has been codified into law.