Three alternative machine models are being considered for an ongoing operation.

Question

Three alternative machine models are being considered for an ongoing operation. The three alternatives will be used in the production of the same product. Therefore, the selection among the three will be based on total costs. Model A costs $54,000 and will last 4 years. Its real operating cost is $8,300/year. Model B costs $65,000 and will last 5 years. Its real operating cost is $8,200/year. Model C costs $72,000 and will last 6 years, Its real operating cost is $8,000/year. It is determined that the real opportunity cost of capital is 6.75%. Rank the three models from the best choice to the least choice.

Best A, B, C Least

Best A, C, B Least

Best B, A, C Least

Best B, C, A Least

Best C, A, B Least

Best C, B, A Least

Best A, B, C Least

Best A, C, B Least

Best B, A, C Least

Best B, C, A Least

Best C, A, B Least

Best C, B, A Least

Explanation / Answer

Best B, C, A Least

Best B, C, A Least

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