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Finance

Problem:

DeCento's is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $276,000, annual operating costs of $18,000, and a 3-year life. Machine B costs $220,000, has annual operating costs of $22,000, and a 2-year life. The firm currently pays no taxes.

Required:

Which machine should be purchased and why?

Machine A; because it will save the company about $18,600 a year
Machine A; because it will save the company about $19,261 a year
Machine B; because it will save the company about $21,202 a year
Machine B; because it will save the company about $19,315 a year
Machine B; because it will save the company about $18,667 a year

Note: Show all workings.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91175181

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