Question
Veracity Technologies is deciding between two different machines. Machine A costs $536000, with a 4-year life, and requires $98,000 in pre-tax annual operating costs. Machine
Veracity Technologies is deciding between two different machines. Machine A costs $536000, with a 4-year life, and requires $98,000 in pre-tax annual operating costs. Machine B costs $652,000 with a 6-year life and requires $106,000 in pre-tax annual operating costs. Both machines are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever machine is taken, it will not be replaced when it wears out. Suppose the tax rate is 41% and the discount rate is 13%, which machine should the firm select? (You must show your full working and are not allowed to use Excel)
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