Mr. Butler runs a lawnmowing business. Recently his manager Ms Natalie reported that one of...
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Accounting
Mr. Butler runs a lawnmowing business. Recently his manager Ms Natalie reported that one of the mowers has to be replaced. After analysing the prices of different mowers, Ms Natalie finally came up with two options:
Option 1: Mower A costs $250 and expected to last 2 years
Option 2: Mower B costs $360 and expected to last 3 years
Mr. Butler instructed Ms Natalie to purchase mower B, since its investment is $360/3 = $120 per year, which is lower than the investment of $250/2 = $125 per year in mower A. Ms Natalie purchased mower B and replaced the old one. Did Mr. Butler take the correct decision? Explain your answer with detailed workings/calculations. Assume 10% cost of capital
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