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Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS

Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A firm is trying to choose between two machines to manufacture a new line of office furniture. The financial data for each machine have been compiled as follows:

The firm's marginal tax rate is 40% and uses a 15% discount rate to value the projects. Also, assume that the required service period is indefinite.

Using the replacement chain method (machine B can be replaced with an identical machine at the end of year 3), determine which project should be adopted after tax.
(a) Machine A.
(b) Machine B.
(c) Either machine.
(d) Neither machine.

Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS
Transcribed Image Text:Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS
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