A Janitorial Services Firm Is Considering Two Brands of Industrial

Multiple Choice

A janitorial services firm is considering two brands of industrial vacuum cleaners to equip their staff. Option A will cost $1,500, require servicing of $200 per year, and it will last five years. Option B will cost $1,000, require servicing of $100 per year, and it will last three years. If the cost of capital is 8%, which is the better option, given that the firm has an ongoing requirement for vacuum cleaners?

A) Option A, since it has a lower equivalent annual annuity.
B) Option B, since it has a lower equivalent annual annuity.
C) Option A, since it has a greater equivalent annual annuity.
D) Option B, since it has a greater equivalent annual annuity.