Assume you are considering two mutually exclusive machines and need to select one for a cost-cutting project. Which one of these sets of characteristics best indicates the use of the equivalent annual cost method of analysis?
A) Differing costs with no replacement at end of life
B) Differing lives and planned replacement at end of life
C) Differing lives with no replacement at end of life
D) Differing manufacturers and differing operating costs
E) Differing required returns with no replacement at end of life

Question

Quizplus · Accepted Answer

The equivalent annual cost method is used when comparing two mutually exclusive projects with different lives and planned replacement at the end of life. This method calculates the annual cost of each project, taking into account both initial cost and maintenance costs, and then calculates the present value of those costs over the life of the project. By doing so, it allows for a direct comparison of the annual cost of each project over its respective life.

Assume You Are Considering Two Mutually Exclusive Machines and Need