Imagine we are in the business of manufacturing pizza. Whenever a pizza oven wears out, we...

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Imagine we are in the business of manufacturing pizza. Whenever a pizza oven wears out, we have to replace it with a new one to stay in business. We are considering which of the two new pizza ovens at Home Depot to buy. Machine A costs $100 and $10 per year to operate. It wears out and must be replaced every 2 years. Machine B costs $140 and $8 per year to operate. It lasts for 3 years and must then be replaced. Ignoring taxes, which Machine should we choose if we use a 10% discount rate? Hint: In comparing the two machines, we notice that the first is cheaper, but it costs more to operate and wears out more quickly. How can we evaluate these trade-offs? EAC 1 NPV 1 (1 + discont rate)¹ discont rate Imagine we are in the business of manufacturing pizza. Whenever a pizza oven wears out, we have to replace it with a new one to stay in business. We are considering which of the two new pizza ovens at Home Depot to buy. Machine A costs $100 and $10 per year to operate. It wears out and must be replaced every 2 years. Machine B costs $140 and $8 per year to operate. It lasts for 3 years and must then be replaced. Ignoring taxes, which Machine should we choose if we use a 10% discount rate? Hint: In comparing the two machines, we notice that the first is cheaper, but it costs more to operate and wears out more quickly. How can we evaluate these trade-offs? EAC 1 NPV 1 (1 + discont rate)¹ discont rate

Answer rating: 100% (QA)

The best option to choose between the two pizza ovens is Machine B as it has a lower upfront cost an... View the full answer