Dan is comparing three machines to determine which one to purchase.The machines sell for differing prices,have differing operating costs,differing 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

Question

Quizplus · Accepted Answer

Dan should use the equivalent annual cost method as the basis for his decision. This method compares the costs and benefits of each machine on an annual basis, taking into account differences in purchase price, operating costs, and machine life. By comparing the equivalent annual costs of each machine, Dan can determine which one will be the most cost-effective in the long run.

Dan Is Comparing Three Machines to Determine Which One to Purchase.The