Question
Your firm wants to purchase a new machine for the manufacturing plant and is deciding between two choices Machine X and Machine Y. Machine X
Your firm wants to purchase a new machine for the manufacturing plant and is deciding between two choices Machine X and Machine Y. Machine X costs $854,000 and requires $147,000 in pretax annual operating costs. Machine Y costs $798,000 and requires $104,000 in pretax annual operating costs. Machine X has a life of 8 years and Machine Y has a life of 11 years. Both the machines will be depreciated using the straight-line method to book value of zero over their life and they will have no salvage value. Whichever machine is selected, it will never be replaced. The discount rate is 13 percent and the tax rate is 35 percent. Which machine should be purchased and why?
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Machine X because its NPV is about $114,558 higher than Machine Y's NPV
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Machine Y because its NPV is about $95,188 higher than Machine X's NPV
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Machine X because its NPV is about $64,217 higher than Machine Y's NPV
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Machine Y because its equivalent annual cost (EAC) is about $83,404 lower than Machine X's EAC
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Machine X because its equivalent annual cost (EAC) is about $83,404 lower than Machine Y's EAC
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