Bruno's, Inc

question 208

Multiple Choice

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.)

• A) machine A; because it will save the company about $8,600 a year
• B) machine A; because it will save the company about $102,134 a year
• C) machine B; because it will save the company about $92,628 a year
• D) machine B; because it will save the company about $9,506 a year
• E) machine B; because its equivalent annual cost is $192,000

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Definitions:

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A U.S. government agency responsible for ensuring safe and healthy working conditions by setting and enforcing standards.

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Injury or damage to the body resulting from an external force or agent.

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A state of being unwell, typically due to disease or poor health.

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The permanent cessation of all vital functions in a living organism, marking the end of life.