The Best Company Is Reviewing Two Options for Replacing a Piece

Multiple Choice

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?

A) Net present value
B) Internal rate of return
C) Accounting rate of return
D) Total cash flows
E) Equivalent annual cost