Toni's Tools is comparing 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.These machines should be compared using:

Question

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The machines should be compared using their equivalent annual costs. This method takes into account the initial cost, operating costs, salvage value, and machine life of each option, and converts those expenses into an equal annual cost. By comparing the equivalent annual costs of each machine, Toni's Tools can determine which option will be the most cost-effective over the long term. Net present value and internal rate of return are also useful tools for analyzing investment opportunities, but they do not take into account the ongoing costs of maintaining and operating the machines. The replacement parts approach and the depreciation tax shield approach are not appropriate for comparing machines.

Toni's Tools Is Comparing Machines to Determine Which One to Purchase.The