Sanjay's Incorporated Is Analyzing Two Machines to Determine Which One

question 3

Multiple Choice

Sanjay's Incorporated 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 Sanjay's purchase and why? (Round your answer to the nearest whole dollar.)

• 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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