A firm is forced to choose between two machines, I and J. The machines are designed differently but have identical capacity and do exactly the same job. Machine I costs $15,000 and will last 3 years. It costs $4000 per year to run. Machine J is an "economy" model, costing only $10,000 but has life of 2 years and costs $6000/year to run.

If discount rate is 6%, which machine is more economical?

Answer rating: 100% (QA)

To determine which machine is more economical we need to calculate the present value of the costs as... View the full answer