Your firm produces light bulbs. Your old machine is costing a lot of money lately in repairs and your are considering replacing it. You have two offers as shown in the left. Assuming straight line depreciation with 0 salvage value over the life of the project.

You sell each light bulb for $0.40, the discount rate is 12% and the corporate tax rate is 40%.

a. Which machine would you prefer to buy if your annual production is 1,000,000 light bulbs?

b. At what level of production will you change your answer?

Discount rate	12%
Corporate tax rate	40%
Annual production	1,000,000
Price of light bulbs	0.40
	Machine A	Machine B
Cost	500,000	200,000
Variable cost per light bulbs	0.12	0.25
Fixed costs	100,000	75,000
Life span	10	4