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:

Dividend Income

Income received from owning shares in a company, typically paid out from the company's profits.

Gain Potential

The possible financial profit that can be achieved from an investment, considering the risk and opportunity cost.

Trading Securities

Financial assets that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Fair Value

An estimated market value of an asset or liability based on current market prices or valuations.