Final answer:
To choose between two machinery options for purchase, the equivalent uniform annual cost (EUAC) must be calculated for each, considering their respective costs, salvage values, and operating expenses over their useful lives at a 10% interest rate. The machine with the lower EUAC is generally the better choice. Specific calculations are needed to mention the correct option in the final answer.
Step-by-step explanation:
A company is considering purchasing a new piece of machinery and has two options with different initial costs, salvage values, operating costs, and useful lives. To determine which machine should be purchased, based on equivalent uniform annual cost (EUAC), we need to perform calculations that consider each machine's initial cost, salvage value, annual operating cost, and useful life at a 10% interest rate.
Machine I:
- Initial cost: $80,000
- Salvage value: $20,000
- Annual operating cost: $18,000
- Useful life: 20 years
Machine II:
- Initial cost: $100,000
- Salvage value: $25,000
- Annual operating cost: $15,000 for the first 10 years, $20,000 thereafter
- Useful life: 25 years
The answer provided is an example and does not include specific calculations. To determine the actual EUAC, one would need to calculate the present worth of costs, annualize that over the machine's useful life, and include the effects of salvage value at the end of the useful life. The machine with the lower EUAC would typically be the preferred choice as it represents the lower cost option, taking into account the time value of money.