A company is comparing two crane purchase options. Crane A costs $5 million with $1 million in annual operating costs and lasts 5 years. Crane B costs $3 million with $1.1 million in annual operating costs and lasts 3 years. Using a discount rate of 10%, the equivalent annuities are $2.319 million and $2.306 million respectively. Based on this analysis, which of the following is the most accurate economic interpretation ?

Question

A company is comparing two crane purchase options. Crane A costs $5 million with $1 million in annual operating costs and lasts 5 years. Crane B costs $3 million with $1.1 million in annual operating costs and lasts 3 years. Using a discount rate of 10%, the equivalent annuities are $2.319 million and $2.306 million respectively. Based on this analysis, which of the following is the most  accurate economic interpretation ?

Answer

Crane B is preferred due to its lower equivalent annuity, despite higher per-year costs.

Answer

Crane A is financially superior because of its longer replacement cycle.

Answer

Crane A is more cost-effective because its NPV is higher.

Answer

Crane B is more cost-effective based on lower total operating costs.

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A company is comparing two crane purchase options. Crane A costs $5 million with...

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