Question: You need to choose between two machines based on the following information: Machine 1 has a 3 year life, costs $350,000 with pre-tax operating costs

You need to choose between two machines based on the following information:

Machine 1 has a 3 year life, costs $350,000 with pre-tax operating costs of $75,000 per year.

Machine 2 has a 5 year life, costs $500.000 with pre-tax operating costs of $37,500 per year.

Both machines have a salvage value of $25,000 and are classed with a CCA rate of 20% per year. The company tax rate is 32% and the discount rate is 12%.

What is the EAC?

Which machine would you select as an investment?

Please show all calculations used to derive you answers

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