Question: You need to choose between two machines based on the following information: Machine 1 has a 4-year life and costs $322,500 with pre-tax operating costs

You need to choose between two machines based on the following information: Machine 1 has a 4-year life and costs $322,500 with pre-tax operating costs of $64,500 per year. Machine 2 has a 3-year life and costs $425,250 with pre-tax operating costs of $39,600 per year. Both machines have a salvage value of $22,500 and are classed with a CCA rate of 18% per year. The company tax rate is 30% and the discount rate is 10%.

a) What is the EAC?

b) Which machine would you select as an investment?

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EAC for Machine 1 Year 1 3 4 Initial cost 32250000 32250000 26445000 21684900 ... View full answer

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