DeCento's Is Analyzing Two Mutually Exclusive Machines to Determine Which

question 18

Multiple Choice

DeCento's is analyzing two mutually exclusive machines to determine which one it should purchase.Whichever machine is purchased,it will be replaced at the end of its useful life.The company requires a return of 15 percent and uses straight-line depreciation to a zero book value over the life of the machine.Machine A has a cost of $386,000,annual operating costs of $29,000,and life of 4 years.Machine B costs $257,000,has annual operating costs of $19,000,and a life of 3 years.The firm currently pays no taxes.Which machine should be purchased and why?

• A)Machine A because it will save the company about $32,642 a year
• B)Machine A because it will save the company about $19,261 a year
• C)Machine B because it will save the company about $32,642 a year
• D)Machine B because it will save the company about $10,000 a year
• E)Machine B because it will save the company about $19,261 a year

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