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EAC

This topic has 1 reply, 2 voices, and was last updated 7 months ago by LMR1006.

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May 15, 2024 at 5:34 pm #705454
sabitha
Participant
- Topics: 19
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28 Is each of the following statements about Ridag Co using the equivalent annual cost method true or false?
True
False
Ridag Co cannot use the equivalent annual cost method to compare Machine 1 and Machine 2 because they have different useful lives
The machine which has the lowest total present value of costs should be selected by Ridag Co
Sir could you explain second statement it might be EAB if it has diffrent lives
May 15, 2024 at 11:27 pm #705464
LMR1006
Keymaster
- Topics: 4
- Replies: 1319
Both are false
The machine with the lowest equivalent annual cost should be purchased not the present value of future cash flows alone.
The lives of the two machines are different lives and the equivalent annual cost method does allow this to be taken into consideration.
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