Equivalent annual cost: Your company decided to purchase a machine. Now, the business needs to decide...

 

 

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Equivalent annual cost: Your company decided to purchase a machine. Now, the business needs to decide which model to purchase. Two different models, with different characteristics will meet the needs of your business. The purchase cost of machine A is $150,000. The operating cost for the machine (before tax) is $65,000 per year. The machine's expected useful life is 8 years with no salvage value at the end of its useful life. The purchase cost of machine B is $100,000. The operating cost for the machine (before tax) is $57,500 per year. The machine's expected useful life is 6 years with no salvage value at the end of its useful life. Neither machine will impact revenue. There is no change in net working capital. The required return for the project is 10%. The CCA rate for the machines is 20%. The company's marginal income tax rate is 40%. Which machine would you recommend? Calculate the NPV for each machine using the six step approach (nearest dollar without dollar sign ($) or comma, e.g. 15000) Negative cash flow is -15000): What is the NPV for machine A? -294045 What is the NPV for machine B? -215408 Equivalent annual cost: Your company decided to purchase a machine. Now, the business needs to decide which model to purchase. Two different models, with different characteristics will meet the needs of your business. The purchase cost of machine A is $150,000. The operating cost for the machine (before tax) is $65,000 per year. The machine's expected useful life is 8 years with no salvage value at the end of its useful life. The purchase cost of machine B is $100,000. The operating cost for the machine (before tax) is $57,500 per year. The machine's expected useful life is 6 years with no salvage value at the end of its useful life. Neither machine will impact revenue. There is no change in net working capital. The required return for the project is 10%. The CCA rate for the machines is 20%. The company's marginal income tax rate is 40%. Which machine would you recommend? Calculate the NPV for each machine using the six step approach (nearest dollar without dollar sign ($) or comma, e.g. 15000) Negative cash flow is -15000): What is the NPV for machine A? -294045 What is the NPV for machine B? -215408