15. You need a metal cutting machine for your operations. Your current machine is worn out so you are trying to decide which one of two machines to buy as a replacement. Whichever machine you purchase will likewise be replaced after its useful life. Machine A costs $221,000 and costs $16,000 a year to operate over a 3-year life. Machine B costs $190,000 and costs $21,000 to operate over a 2-year life. Given this information, which one of the following statements is correct if the applicable discount rate is 9 percent? a. Machine A cuts the annual cost by $25,702 as compared to machine B. b. Machine B cuts the annual cost by $34,559 as compared to machine A. c. The equivalent annual cost of machine A is -$261,501. d. The equivalent annual cost of machine B is -$236,129. e. You are indifferent between using either machine. You need to compute and compare the EACs of the two machines (this is deliberately left for you to solve).

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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15. You need a metal cutting machine for your operations. Your current machine is worn out so you are
trying to decide which one of two machines to buy as a replacement. Whichever machine you purchase will
likewise be replaced after its useful life. Machine A costs $221,000 and costs $16,000 a year to operate over
a 3-year life. Machine B costs $190,000 and costs $21,000 to operate over a 2-year life. Given this
information, which one of the following statements is correct if the applicable discount rate is 9 percent?
a. Machine A cuts the annual cost by $25,702 as compared to machine B.
b. Machine B cuts the annual cost by $34,559 as compared to machine A.
c. The equivalent annual cost of machine A is -$261,501.
d. The equivalent annual cost of machine B is -$236,129.
e. You are indifferent between using either machine.
You need to compute and compare the EACs of the two machines (this is deliberately left for you to solve).
Transcribed Image Text:15. You need a metal cutting machine for your operations. Your current machine is worn out so you are trying to decide which one of two machines to buy as a replacement. Whichever machine you purchase will likewise be replaced after its useful life. Machine A costs $221,000 and costs $16,000 a year to operate over a 3-year life. Machine B costs $190,000 and costs $21,000 to operate over a 2-year life. Given this information, which one of the following statements is correct if the applicable discount rate is 9 percent? a. Machine A cuts the annual cost by $25,702 as compared to machine B. b. Machine B cuts the annual cost by $34,559 as compared to machine A. c. The equivalent annual cost of machine A is -$261,501. d. The equivalent annual cost of machine B is -$236,129. e. You are indifferent between using either machine. You need to compute and compare the EACs of the two machines (this is deliberately left for you to solve).
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