The Best Company is reviewing two options for replacing a piece of machinery. The first machine costs $86,500 and has a four-year life. The second machine costs $123,000 and has a six-year life. Neither machine will have a salvage value. The machines will be replaced at the end of their life. What method should be used to determine which machine to purchase?

Question

Quizplus · Accepted Answer

Equivalent annual cost (EAC) is the best method to determine which machine to purchase because it allows for the comparison of the annual costs of these assets over their respective lifespans, taking into account both the initial investment and the different life spans of the machines.

The Best Company Is Reviewing Two Options for Replacing a Piece