Question: You are evaluating two different machines. Machine A costs $210,000, has a three-year life and has pretax operating costs of $30,000 per year. Machine B
You are evaluating two different machines. Machine A costs $210,000, has a three-year life and has pretax operating costs of $30,000 per year. Machine B costs $320,000, has a five-year life and has pretax operating costs of $23,000 per year. You will depreciate both machines using straight-line depreciation to a zero salvage value over the machines life. The expected salvage value for each machine is $20,000. If your tax rate is 40%, both machines are repeatable and your discount rate is 14%, which machine should you purchase assuming you have to purchase one of the machines?
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