You are evaluating two different stamping machines. The Stamper I costs $123053, has a three-year life,...

You are evaluating two different stamping machines.
The Stamper I costs $123053, has a three-year life, and has pretax operating costs of $30,000 per year. The Stamper II costs $200,000, has a five-year life, and has pretax operating costs of $45,000 per year.
For both machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $20,000. If your tax rate is 35 percent and your discount rate is 10 percent, compute the EAC for both machines. Which do you prefer?

a. Choose Stamper II, since Stamper I's EAC is $80354.11, which is higher than EAC of Stamper II

b. Choose Stamper I, since its EAC is $50697.76, which is lower than EAC of Stamper II

c. Choose Stamper I, since its EAC is $80354.11, which is higher than EAC of Stamper II

d. Choose Stamper II, since Stamper I's EAC is $50697.76, which is lower than EAC of Stamper II

Expert Solution

ANSWER : b : CHOOSE STAMPER I, SINCE ITS EAC IS 50.697.76, WHICH IS LOWER THAN EAC OF STAMPER II.

jeff jeffy answered 1 year ago

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