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Question 5.Act.4: Use the table provided in Appendix B to calculate the equiva...

Use the table provided in Appendix B to calculate the equivalent annual annuity for each machine referred to in Example 5.2. Which machine is the better buy?

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The equivalent annual annuity for Machine A (in £000s) is:

£3.6 × 0.5762 = £2.07

The equivalent annual annuity for Machine B (in £000s) is:

£5.0 × 0.4021 = £2.01

Machine A is therefore the better buy as it provides the higher annuity value. This is consistent with the finding of the shortest-common-period-of-time approach described earlier.

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