A firm is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 14 percent and uses
A firm is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 14 percent and uses straight-line depreciation to a zero book value over the life of its equipment. Machine A has a cost of $744,205, annual operating costs of $34,200, and a four-year life. Machine B costs $798,000, has annual operating costs of $21,500, and has a four-year life. Whichever machine is purchased will be replaced at the end of its useful life. The firm should purchase Machine ________ because it lowers the firm's annual costs by approximately ________ as compared to the other machine.
