Question
A company is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 15 percent and uses
A company is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. Ignore bonus depreciation. Machine A has a cost of $462,000, annual after-tax cash outflows of $46,200, and a four-year life. Machine B costs $898,000, has annual after-tax cash outflows of $16,500, and has a seven-year life. Whichever machine is purchased will be replaced at the end of its useful life. The company should purchase [ Select ] because that machine's EAC is [ Select ] less as compared to the other machine's EAC.
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