Question

Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs and machine lives, and will be replaced when worn out. Which one of the following computational methods should Dan use as the basis for his decision?
a. internal rate of return
b. operating cash flow
c. equivalent annual cost
d. depreciation tax shield
e. bottom-up operating cash flow

Answer 1

Answer:

c. equivalent annual cost

Explanation:

The equivalent annual cost is the method that take the decision with regard to the capital expenditure at the time when there are various kind of projects and non-equal life periods. Also the effectiveness of the cost of different types of assets could be compared

So as per the given situation, the option c is correct