Choose the correct answer for the following question:Your company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its usefullife. The company requires a 10 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has acost of $300,000, annual operating costs of $42,000, and a 5-year life. Machine B costs $265,000, has annual operating costs of $50,000, and a 4-year life.The company currently pays no taxes. Which machine should be purchased and why? (Hint: consider the equivalent annual cost-EAC of the two machines)A. Machine A; because it will save the company about $8,783 a yearB. Machine A; because it will save the company about $14,670 a yearC. Machine B; because it will save the company about $11,482 a yearD. Machine B; because it will save the company about $9,916 a yearE. Machine A; because it will save the company about $12,461 a year

NPV is also known as Net Present Value. It is a capital budgeting technique which helps in decision…

Answered: Your company is analyzing two machines…

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

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