1. Boston Engineering is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $495,000, annual operating costs of $28,000, and a 3-year life. Machine B costs $302,000, has annual operating costs of $45,000, and a 2-year life. The firm currently pays no taxes. Which machine should be purchased and why?
Machine A; because it will save the company about $11,500 a year
Machine A; because it will save the company about $14,280 a year
Machine B; because it will save the company about $8,760 a year
Machine B; because it will save the company about $9,768 a year
Machine B; because it will save the company about $10,400 a year
2. Assume a machine costs $450,000 and lasts four years before it is replaced. The operating cost is $29,000 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 8 percent? (Hint: the EAC should c
$134,270.96
$159,211.72
$147,290.66
$164,864.36
$170,160.44