You have been asked to evaluate 2 machines. The yearly benefits from ownership are identical. Machine A costs $300 to buy and install, lasts for 5 years and the cost of operation is $150 per year from year 1 to year 5. Machine B costs $500, lasts for 7 years, and the cost of operation is $120 per year from year 1 to year 7. Both machines have zero salvage value. The cost of capital is 10%. Which of the following statements is true?
Question 22 options:
a)
The cost of operating Machine B in perpetuity is $2,291.
b)
Machine B is better than Machine A because it has lower operating costs for more years.
c)
None of the listed answers
d)
Machine B's NPV is approximately $216 more than Machine A's NPV.