J&J Automotive is analyzing two machines to determine which one they should purchase. The company requires a 16% rate of return and the machinery belongs in a 30% CCA class. Machine A has a cost of $427,000, annual operating costs of $13,000, and a 4-year life. Machine B costs $390,000, has annual operating costs of $6,500, and has a 3-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should J&J purchase and why? Ignore taxes.

Multiple Choice

• B; because its EAC is $181,602.43

• B; because its EAC is $11,209.18 less than that of Machine A

• B; because its EAC is $12,408.23 less than that of Machine A

• A; because its EAC is $14,551.41 less than that of Machine B

• A; because its EAC is $162,408.19