Question
You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A
You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50,000 initially and then $70,000 per year in maintenance. Machine B has an initial cost of $90,000. It requires $40,000 in maintenance for each year of its three-year life. Either machine must be replaced at the end of its life. The opportunity cost of capital is 15% and the tax rate is zero. Which is the better machine to purchase?
A) Machine A, which has an EAC of $100,766. B) Machine B, which has an EAC of $79,418. C) Machine A, which has a PV of costs of $163,799. D) Machine B, which has a PV of costs of $181,328.
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