Question: A firm is considering buying a new machine and has to choose between two options. The specifications of each are given below: For each machine,

A firm is considering buying a new machine and has to choose between two options. The specifications of each are given below:

For each machine, assume a three-year MACRS (GDS) recovery property and depreciation class, with an effective income tax rate of 50%, a before-tax MARR of 25% and after-tax MARR of 15%. Find the alternative that should be selected.

Machine Machine II Initial cost $100,000 $80,000 Operating cost $20,000 25,000 per year Economic life Final salvage 5 years $40,000 5 years $15,000 value

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