DeCento's Is Analyzing Two Machines to Determine Which One It

question 80

Multiple Choice

DeCento's is analyzing two machines to determine which one it should purchase.Whichever machine is purchased will be replaced at the end of its useful life.The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine.Machine A has a cost of $276,000,annual operating costs of $18,000,and a 3-year life.Machine B costs $220,000,has annual operating costs of $22,000,and a 2-year life.The firm currently pays no taxes.Which machine should be purchased and why?

• A)Machine A;because it will save the company about $18,600 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 $21,202 a year
• D)Machine B;because it will save the company about $19,315 a year
• E)Machine B;because it will save the company about $18,667 a year

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