Evaluating tow different machines

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Reference no: EM131575499

Megatrac Co. is evaluating two different machines. Machine A costs $215,000 has a four year life, and has a pretax operating costs of $40,000 per year. Machine B costs $270,000, has a six-year life, and a has a pretax operating cost of $10,000 per year. Both machines use straight line depreciation to zero over the project's life and assume a salvage value of $20,000. The company has a 35% tax rate and a discount rate of 12%. Which of the following statements is correct?

a. The firm should select machine B because it has a higher EAC

. b. The firm should select machine A because it has a higher EAC

c. The firm should select machine A because it has a lower EAC.

d. The firm should select machine B because it has a lower EAC.

Reference no: EM131575499

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