Three alternative machine models are being considered for an ongoing operation.

Question

Three alternative machine models are being considered for an ongoing operation. The three alternatives will be used in the production of the same product. Therefore, the selection among the three will be based on total costs. Model A costs $105,000 and will last 4 years. Its real operating cost is $10,200/year. Model B costs $110,000 and will last 5 years. Its real operating cost is $9,400/year. Model C costs $125,000 and will last 6 years, Its real operating cost is $9,600/year. It is determined that the real opportunity cost of capital is 7%. Rank the three models from the best choice to the least choice.

Explanation / Answer

Answer:

My best choice to the least choice is: Best B, A, C Least

Becuase B will provide the highest profit over the last 5 years and the real operating cost is also very less compared to the others and it cost only 9,400 dollars per year.and next we can consider the A will provide the second best and it was last for 4 years and its cost only 10200 dollars per year and last one is least profit one C it will last for 6years and costs 125,000 and operating cost is 9,600 per year.

please check and my answer is right in my assumption of the data which you have given.

thank you

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