A garage is comparing the cost of buying two different car hoists. Hoist A will cost $20,000, will require servicing of $1000 every two years, and last ten years. Hoist B will cost $15,000, require servicing of $800 per year, and last eight years. If the cost of capital is 7%, which is the better option, given that the firm has an ongoing requirement for a hoist?
A) Hoist A, since it has a greater present value (PV).
B) Hoist B, since it has a greater present value (PV).
C) Hoist A, since it has a greater equivalent annual annuity.
D) Hoist B, since it has a greater equivalent annual annuity.

Question

Quizplus · Accepted Answer

D) Using a financial calculator,
NPV(A) = -$23,393 equivalent annual annuity (A) = -$3,331
NPV(B) = -$19,777 equivalent annual annuity (B) = -$3,312

A Garage Is Comparing the Cost of Buying Two Different