The firm is considering two machines:
Machine A with initial investment of S10,000 and annual maintenance cost of $1,000.
The life of the machine A is 4 years.
Machine B with initial investment of $20,000 and annual maintenance cost of $800. The
life of the machine B is 6 years,
If the required rate of return is 10ºo. calculate the equivalent annual cost (EAC) of each
machine and which machine company must choose?
(A) The EAC of Machine A is $4.154.71 and Machinel3 is $5.392. 15. The Company
must choose Machine B.
(B) The EAC of Machine A is $4.154.71 and Machine B is $5.392.15. The Company
must choose Machine A.
(C) The EAC of Machine A is $3.169.87 and Machine B is $3.484.21. The Company
must choose Machine B.
(D) The EAC of Machine A is $3.169.87 and Machine B is $3.484.21. The Company
must choose Machine A.
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Answer:(B) The EAC of Machine A is $4.154.71 and Machine B is $5.392.15. The Company must choose Machine A.
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