Question #2: Which Should We Buy?

• Using the EAC approach, which machine should we choose? Use the table below to plan your cash flows (Bold boxes are where #s should be).
• Neither machine will have a differential impact on revenue. No change in NWC is required. The straight line depreciation rate is 20%, the required return is 10% and the tax rate is 40%. There is no salvage values for either machine.

	Machine A	Machine B
Initial Cost	$150,000	$100,000
Pre-Tax Operating Costs/year	$65,000	$57,500
Expected Life (years)	8	5

AutoSave OFF Aos 50 w Chapter 10 - Mini Assignment(1) - Saved to my Mac Home Insert Draw Design Layout References Mailings Review View Share Io Comments Paste Styles Pane Dictate Sensitivity Calibri (B... 11 A A Aap EvEvv 21 ( AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdEt AaBb AaBb CcDdE BI U vab x, x A LA EEEE Ev v Normal No Spacing Heading 1 Heading 2 Title Subtitle Question #2: Which Should We Buy? Using the EAC approach, which machine should we choose? Use the table below to plan your cash flows (Bold boxes are where #'s should be). Neither machine will have a differential impact on revenue. No change in NWC is required. The straight line depreciation rate is 20%, the required return is 10% and the tax rate is 40%. There is no salvage values for either machine. Machine A Machine B Initial Cost $150,000 $100,000 Pre-Tax Operating Costs/year $65,000 $57,500 Expected Life (years) 3 4 5 Machine A: Cash Flows Year After tax Operating costs / year Initial Cost Total Cash Flows Depreciation Tax Shield (Benefit) NPV EAC 1 2 Machine B: Cash Flows Year After tax Operating costs / year Initial Cost Total Cash Flows Depreciation Tax Shield (Benefit) NPV EAC English (United States) Page 2 of 2 312 words * O Focus E ' - - - + 140%