Company Smart is going to buy a new machine to replace the old one which was exhausted. There are two machines P and Q. Both machines generate same production and have life of 10 years. The costs of machine P and Q are $10,000 and $9,000 respectively. The annual maintenance costs (excluding depreciation) for machines P and Q are $800 and $1,200 respectively. Company follows straight line method to depreciate its assets. Applicable tax rate of the company is 40%. Cost of capital of the company is 12%. What is the EAC of machine P and EAC of machine Q and Which machine should be selected by company Smart? $1,800.00 and $2,100.00, Machine P should be selected. $1,849.84 and $1,952.86, Machine P should be selected. $2,249.84 and $2,312.86, Machine Q should be selected. $1,369.84 and $1,232.86, Machine Q should be selected.
Company Smart is going to buy a new machine to replace the old one which was exhausted. There are two machines P and Q. Both machines generate same production and have life of 10 years. The costs of machine P and Q are $10,000 and $9,000 respectively. The annual maintenance costs (excluding depreciation) for machines P and Q are $800 and $1,200 respectively. Company follows straight line method to depreciate its assets. Applicable tax rate of the company is 40%. Cost of capital of the company is 12%. What is the EAC of machine P and EAC of machine Q and Which machine should be selected by company Smart? $1,800.00 and $2,100.00, Machine P should be selected. $1,849.84 and $1,952.86, Machine P should be selected. $2,249.84 and $2,312.86, Machine Q should be selected. $1,369.84 and $1,232.86, Machine Q should be selected.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Company Smart is going to buy a new machine
to replace the old one which was exhausted.
There are two machines P and Q. Both
machines generate same production and have
life of 10 years. The costs of machine P and Q
are $10,000 and $9,000 respectively. The
annual maintenance costs (excluding
depreciation) for machines P and Q are $800
and $1,200 respectively. Company follows
straight line method to depreciate its assets.
Applicable tax rate of the company is 40%.
Cost of capital of the company is 12%. What is
the EAC of machine P and EAC of machine Q
and Which machine should be selected by
company Smart?
$1,800.00 and $2,100.00, Machine P should be selected.
$1,849.84 and $1,952.86, Machine P should be selected.
$2,249.84 and $2,312.86, Machine Q should be selected.
$1,369.84 and $1,232.86, Machine Q should be selected.
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