Should purchase machine a or machine b

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Tommy must choose between two machines. Machine A costs $25,000 and will last for 4 years at which time it is expected to sell for $2,000, while machine B costs $32,000 and will likely sell for $2,000 at the end of its 5-year life. Both machines can be depreciated by 25% of their purchase price in each year. The machines perform identical functions; however, the running cost of Machine A is $2,000 p.a. higher.

Problem 1: If there are no taxes, and Tommy's required rate of return is 10% p.a., should he purchase machine A or machine B?

 

Reference no: EM132983998

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