You Are Considering the Purchase of One of Two Machines

question 22

Multiple Choice

You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $100 initially, and then $150 per year in maintenance costs. Machine B costs $200 initially, has a life of three years, and requires $120 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 12 percent and the tax rate is zero.

• A)Machine A
• B)Machine B
• C)Both machines A and B
• D)Neither machine A nor B