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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Definitions:

Degrees Of Freedom

The number of independent values or quantities that can vary in an analysis without breaking any constraints.

Equality Of Variances

The assumption that different groups or samples have similar variances, often a prerequisite for certain statistical tests.

Test Statistic

A numerical value calculated from a statistical test, used to determine whether to reject the null hypothesis.

Confidence Coefficient

The level of certainty, typically expressed as a percentage, associated with a confidence interval.