Question: Machine A Initial Cost = $150,000 Pre-tax operating cost = $65,000 Expected life is 8 years Machine B Initial Cost = $100,000 Pre-tax operating cost

Machine A

Initial Cost = $150,000

Pre-tax operating cost = $65,000

Expected life is 8 years

Machine B

Initial Cost = $100,000

Pre-tax operating cost = $57,500

Expected life is 6 years

The machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue. No change in NWC is required.

The required return is 10%, the applicable CCA rate is 20% and the tax rate is 40%.

Which machine should you buy?

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