Dan Is Comparing Three Machines to Determine Which One to Purchase

Multiple Choice

Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs and machine lives, and will be replaced when worn out. Which one of the following computational methods should Dan use as the basis for his decision?

A) Internal rate of return
B) Net present value
C) Equivalent annual cost
D) Depreciation tax shield
E) Bottom-up operating cash flow