Question
Cape Craft Ltd is purchasing a tool-making machine. The company is comparing two possible options: Machine A and Machine B. Both have a life of
Cape Craft Ltd is purchasing a tool-making machine. The company is comparing two possible options: Machine A and Machine B. Both have a life of 3 years. The present value of costs associated with both machines for each year has been calculated as follows, using the companys discount rate of 10%: Present value of costs: Year 0 Year 1 Year 2 Year 3 Machine A 170,000 5,060 7,890 9,012 Machine B 110,000 16,500 18,100 24,000 What is the equivalent annual cost of each machine (to the nearest pound?) a. Machine A: 63,987 Machine B: 56,200 b. Machine A: 255,609 Machine B: 224,501 c. Machine A: 47,991 Machine B: 42,150 d. Machine A: 77,186 Machine B: 67,793
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