please tell me how to get the answer Three alternative machine models are being
ID: 2638580 • Letter: P
Question
please tell me how to get the answer
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
a.Best A, B, C Least
b.Best A, C, B Least
c.Best B, A, C Least
d.Best B, C, A Least
e.Best C, A, B Least
f.Best C, B, A Least
Explanation / Answer
We need to find EAC, Equivalent Annual Cost
EAC of A = 54000 / [PVAF(6.75%, 4years)] + 8300 = $24,149.72
EAC of B = 65000 / [PVAF(6.75%, 5years)] + 8200 = $23,946.92
EAC of C = 72000 / [PVAF(6.75%, 6years)] + 8000 = $22,989.91
Thus, Option F, Best C, B, A Least
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