Starboard is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 14.6 percent and uses straight-line depreciation to a zero book value over a machine's life. Ignore bonus depreciation and taxes. Machine A has a cost of $318,000, annual operating costs of $10,000, and a life of 4 years. Machine B costs $247,000, has annual operating costs of $9,300, and a life of 2 years. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Starboard purchase, and why? Which M/C Why?
Starboard is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 14.6 percent and uses straight-line depreciation to a zero book value over a machine's life. Ignore bonus depreciation and taxes. Machine A has a cost of $318,000, annual operating costs of $10,000, and a life of 4 years. Machine B costs $247,000, has annual operating costs of $9,300, and a life of 2 years. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Starboard purchase, and why? Which M/C Why?
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
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Transcribed Image Text:Starboard is analyzing two machines to determine which one it should purchase.
The company requires a rate of return of 14.6 percent and uses straight-line depreciation to a zero book value over a machine's life.
Ignore bonus depreciation and taxes. Machine A has a cost of $318,000, annual operating costs of $10,000, and a life of 4 years.
Machine B costs $247,000, has annual operating costs of $9,300, and a life of 2 years.
Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Starboard purchase, and why?
Which M/C
Why?
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