Question
Deniro's, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 14 percent rate of return and uses straight-line
Deniro's, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 14 percent rate of return and uses straight-line depreciation to zero book value with no salvage value. Machine A has a cost of $150,000, annual operating costs of $10,000, and a 3-year life. Machine B costs $125,000, has annual operating costs of $17,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. (Ignore taxes) What is the equivalent annual cost of Machine A? What is the equivalent annual cost of Machine B?
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