When to use the present equivalent cost comparison

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Reference no: EM13223364

A firm is considering the purchase of one of two new machines. The data on each are given below.
Machine A Machine B
Initial cost $40,000 $60,000
Service life 8 years 10 years
Salvage value $2,000 $5,000
Net operating cost $5,000/year $3,000/year

a) If the firm's MARR is 12%, which alternative should be selected when using equivalent annual cost comparison?

b) If the firm only needs the machine for 5 years. Assuming a salvage value will be $8,000 for Machine A, $15,000 for Machine B at the end of 5th year, which alternative should be selected when using present equivalent cost comparison?

Reference no: EM13223364

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