Consider two mutually exclusive machines

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Consider two mutually exclusive machines: A and B. Acquisition cost of A is $1,000 and of that of B is $1,800. Assume that both machines produce identical revenue and incur identical other costs over their lives. Both machines can be acquired repeatedly over time but the cost of capital of A is 6% and the cost of capital of B is 8%. Additionally, their maintenance costs over their lives (A has economic life of 3 years and B has economic life of 6 years) are as follows:

Year                 Maintenance Cost

                                    A                      B

1                                  160                  132

2                                  160                  132

3                                  160                  132

4                                                          132

5                                                          132

6                                                          130

Which of the two machines is economically more desirable?

Reference no: EM132272001

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