Question
Domino Company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its
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Domino Company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 13 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $341,000, annual operating costs of $28,400, and a 4-year life. Machine B costs $249,000, has annual operating costs of $27,600, and a 3-year life. The firm currently pays no taxes. Which machine should be purchased and why?
Machine A; because it will save the company about $6,127 a year
Machine A; because it will save the company about $7,518 a year
Machine B; because it will save the company about $8,213 a year
Machine B; because it will save the company about $9,985 a year
Machine B; because it will save the company about $6,445 a year
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