Bruno's, Inc

question 363

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:

\(10,000(1.01)^{3t}\)

An exponential function representing the growth of an initial quantity where 10,000 is the initial value, 1.01 is the growth factor, and \(3t\) denotes the rate and time variable.

\(1.7^{-x}\)

An expression denoting an inverse exponential function where the base is 1.7 and the exponent is -x.

Three Decimal Places

A numerical expression rounded or precise to three digits to the right of the decimal point.

Graph

A visual representation of data or of a mathematical function on a set of axes.