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?

Multiple Choice

• Machine A because it will save the company about $19,261 a year

• Machine B because it will save the company about $10,000 a year

• Machine B because it will save the company about $32,642 a year

• Machine B because it will save the company about $19,261 a year

• Machine A because it will save the company about $32,642 a year