Bruno SpA Is Analyzing Two Machines to Determine Which One

question 45

Multiple Choice

Bruno SpA is analyzing two machines to determine which one it should purchase.The company requires a 14% rate of return and uses straight-line depreciation to a zero book value.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? (Round your answer to whole euros.)

• A)Machine A; because it will save the company about €8,600 a year.
• B)Machine A; because it will save the company about €132,912 a year.
• C)Machine B; because it will save the company about €200,000 a year.
• D)Machine B; because it will save the company about €11,600 a year.
• E)Machine B; because its equivalent annual cost is €199,759.

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Definitions:

Trading Securities

Financial securities that a company holds primarily for the purpose of trading them in the short term for profit from their price changes.

Passive Investment

An investment strategy involving minimal buying and selling actions, focusing instead on long-term holding and typically relying on market-wide growth.

Voting Shares

Shares that give the shareholder the right to vote on company matters.

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, principles, and procedures.