Answer:
Machine B
Explanation:
In this question we have to find out the equivalent annual cost which is shown below:
Equivalent annual cost = (Interest Rate × Net present value) ÷ {1 - (1 + interest rate)^-number of years}
For Machine A, it would be
= (15% × -$15,000) ÷ {1 - (1 + 0.15)^-3}
= ($2,250) ÷ (1 - 0.6575162324
)
= ($2,250) ÷ (0.3424837676
)
= -$6,569.65
For Machine B, it would be
= (15% × -$17,700) ÷ {1 - (1 + 0.15)^-4}
= ($2,655) ÷ (1 - 0.5717532456
)
= ($2,655) ÷ (0.4282467544 )
= -$6,199.70
As we can see that the equivalent annual cost has less in Machine B so it would be choose
