Bruno's, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 14% rate of return, each machine belongs in a 30% CCA class, and the firm faces a tax rate of 35%. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Bruno's purchase and why? (Assume that both machines have zero salvage value at the end of their useful lives.) Multiple Choice machine B; because its equivalent annual cost is $192,000 machine B; because it will save the company about $92,628 a year machine B; because it will save the company about $9,506 a year machine A: because it will save the company about $102,134 a year machine A; because it will save the company about $8,600 a year
Bruno's, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 14% rate of return, each machine belongs in a 30% CCA class, and the firm faces a tax rate of 35%. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Bruno's purchase and why? (Assume that both machines have zero salvage value at the end of their useful lives.) Multiple Choice machine B; because its equivalent annual cost is $192,000 machine B; because it will save the company about $92,628 a year machine B; because it will save the company about $9,506 a year machine A: because it will save the company about $102,134 a year machine A; because it will save the company about $8,600 a year
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Bruno's, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 14% rate of return, each machine belongs
in a 30% CCA class, and the firm faces a tax rate of 35%. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine
B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful
life. Which machine should Bruno's purchase and why? (Assume that both machines have zero salvage value at the end of their useful lives.)
Multiple Choice
machine B; because its equivalent annual cost is $192,000
machine B; because it will save the company about $92,628 a year
machine B; because it will save the company about $9,506 a year
machine A: because it will save the company about $102,134 a year
machine A; because it will save the company about $8,600 a year
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