Your Firm Is Evaluating the Merits of Several Different Machines

question 79

Multiple Choice

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885. Which machine should be purchased and why?

• A) Machine C, because it has the highest IRR.
• B) Machine D, because it has the highest NPV.
• C) Machine A, because it has the most positive EAC
• D) Machine B, because it has the shortest useful life.

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Definitions:

Flag Word

A word or phrase used to attract attention or signal something of importance within a text.

Problem And Solution

A framework or approach that identifies a specific issue and proposes one or more ways to fix or address it.

Cause And Effect

A relationship where one event (the cause) makes another event happen (the effect), indicating a connection between two phenomena.

Chronological

In order of time, usually from the earliest event to the latest.