You need to choose between two machines based on the following information:
Machine 1 has a 3 year life, costs $350,000 with pre-tax operating costs of $75,000 per year.
Machine 2 has a 5 year life, costs $500.000 with pre-tax operating costs of $37,500 per year.
Both machines have a salvage value of $25,000 and are classed with a CCA rate of 20% per year. The company tax rate is 32% and the discount rate is 12%.
What is the EAC?
Which machine would you select as an investment?
Please show all calculations used to derive you answers let the working be more clear.