Question

Burlington is analyzing two machines to determine which one it should purchase. Whichever machine is

purchased will be replaced at the end of its useful life. The company requires a 13 percent rate of return and

uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of

$405,000, annual operating costs of $25,000, and a 3-year life. Machine B costs $324,000, has annual

operating costs of $28,000, and a 2-year life. The firm currently pays no taxes. Which machine should be

purchased and why?

A. Machine A;

because it will

save the

company

about $25,706

a year

B. Machine A;

because it will

save the

company

about $21,512

a year

C. Machine B;

because it will

save the

company about

$20,868 a year

D. Machine B;

because it will

save the

company about

$23,937 a year

E. Machine A;

because it will

save the

company

about

$24,109 a

year

Answer 1