You are considering the purchase of a new machine.Your analysis includes the evaluation of two machines which have differing initial and ongoing costs and differing lives.Whichever machine is purchased will be replaced at the end of its useful life.You should select the machine which has the:
A)longest life.
B)highest annual operating cost.
C)lowest annual operating cost.
D)highest equivalent annual cost.
E)lowest equivalent annual cost.

Question

Quizplus · Accepted Answer

The best choice would be the machine with the lowest equivalent annual cost. Equivalent annual cost takes into consideration both the initial cost and ongoing costs over the life of the machine, and presents it as an annual payment. This allows for a fair comparison between the two machines, even if they have different lives and ongoing costs. Choosing the machine with the lowest equivalent annual cost would ensure the lowest overall cost for the business.

You Are Considering the Purchase of a New Machine