You Can Continue to Use Your Less Efficient Machine at a Cost

Multiple Choice

You can continue to use your less efficient machine at a cost of $8,000 annually for the next 5 years. Alternatively, you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance. At a cost of capital of 15%, you should:

A) buy the new machine and save $600 in equivalent annual costs.
B) buy the new machine and save $388 in equivalent annual costs.
C) keep the old machine and save $388 in equivalent annual costs.
D) keep the old machine and save $580 in equivalent annual costs.