Our company must replace an obsolete machine press. We have two bids that are summarized below. Both of the presses fall into the MACRS 5 year property classification. Our company uses an after tax MARR of 12% and MACRS depreciation. Our company falls into the 38% total income tax bracket. The machines are sold at the end of 5 years for their salvage value. Select the most economical alternative based on the after-tax cash flow.
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Data
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A
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B
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Useful Life , Years
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5
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5
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Initial Cost
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$60,000
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$76,000
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Annual Operating Cost
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75,000
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70,000
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Salvage Value
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3500
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5,000
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Part 2
Our company has the option of selling Machine A for$10,000 at the end of year 4. Does this change your choice? Make sure to support your answer and show your work.