Question
Metal Ltd is looking at producing power boards. The company is considering alternative production methods. The costs (in million) and lives associated with each are:
Metal Ltd is looking at producing power boards. The company is considering alternative production methods. The costs (in million) and lives associated with each are:
| Model | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Model 1 | -$90 | -$2 | -$2 | -$2 |
|
|
| Model 2 | -$80 | -$8 | -$8 | -$8 | -$8 | -$8 |
Assume the discount rate is 10%, which model should Metal buy?
| a. | Metal Ltd should choose Model 1 as its annual equivalent cost is higher. | |
| b. | Metal Ltd should choose Model 1 as its annual equivalent cost is lower. | |
| c. | Metal Ltd should choose Model 2 as its annual equivalent cost is lower. | |
| d. | Metal Ltd should choose Model 2 as its annual equivalent cost is higher |
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Financial Management An Introduction
Authors: Jim McMenamin
1st Edition
0415181623, 9780415181624
