Question

The equivalent annual cost method is most useful in determining: Group of answer choices the annual operating cost of an idle machine that is currently owned by a firm. the tax shield benefits of depreciation given the purchase of new assets for a project. operating cash flows for cost-cutting projects of equal duration. which one of two machines to acquire given equal machine lives but unequal machine costs. which one of two machines to purchase when the machines are mutually exclusive, have differing lives, and will be replaced.

Answer 1

Answer:

which one of two machines to acquire given equal machine lives but unequal machine costs.

Explanation:

equivalent annual cost (EAC) is used in determining which investment to make when the investments have different life spans.

When investments have different life spans, the net present value(NPV)  cannot be used in making decisions on investment.

EAC= $\frac{rNPV}{1-\frac{1}{(1+r)^n} }$

where r = interest rate

n = number of years

The decision rule is to invest in the investment with the higher EAC