Question
Jimmy Corporation is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its
Jimmy Corporation 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 since the government requires the company to have any one of the two machines in order to continue the business. The company requires a rate of return of 14.6 percent and uses straight-line depreciation to a zero book value over a machines life. Machine A has a cost of $318,000, annual operating costs of $8,700, and a life of 3 years. Machine B costs $247,000, has annual operating costs of $9,800, and a life of 2 years. Which machine should Starboard purchase and why?
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