Uses straight-line depreciation to a zero book value

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LA Factory 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 12 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 $500,000, annual operating costs of $65,000, and a 4-year life. Machine B costs $240,000, has annual operating costs of $92,000, and a 2-year life. The firm currently pays no taxes. Which machine should be purchased and why?

Reference no: EM131854337

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