ABC Inc., a wedge manufacturer, is deciding between two machines used for making wedges. Machine A will cost $70,000 and Machine B will cost $120,000. The annual before-tax operating costs for Machine A and B are $7,500 and $6,000, respectively. Machine A will last for 2 years before it has to be replaced, whereas Machine B will last for 3 years before it must be replaced. The machines are subject to CCA rate of 30%, and the company's marginal tax rate is 35%. If the required return for ABC is 16%, which machine should ABC choose? Assume that salvage is zero.

Multiple Choice

• Choose Machine B as its EAC is lower by $6,761.

• Choose Machine B as its EAC is higher by $6,761.

• Choose Machine B as its EAC is higher by $1,480.

• Choose Machine A as its EAC is lower by $1,480.

• Choose Machine A as its EAC is lower by $6,761.