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Question #2: Which Should We Buy? Using the EAC approach, which machine should we choose? Use...

Question #2: Which Should We Buy?

  • Using the EAC approach, which machine should we choose? Use the table below to plan your cash flows (Bold boxes are where #’s should be).
  • Neither machine will have a differential impact on revenue. No change in NWC is required. The straight line depreciation rate is 20%, the required return is 10% and the tax rate is 40%. There is no salvage values for either machine.

Machine A

Machine B

Initial Cost

$150,000

$100,000

Pre-Tax Operating Cost

$65,000

$57,500

Expected Life (years)

8

5

Solutions

Expert Solution

Machine B is recommended as its EAC is lower than Machine A

jeff jeffy answered 2 years ago
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