Which analyzer should be purchased

Reference no: EM131006426

Biotech, a medical imaging and modeling company, must purchase a bone cell analysis system for use by a team of bioengineers and mechanical engineers studying bone density in athletes. This particular part of a 3-year contract with the NBA will provide additional gross income of $100,000 per year. The effective tax rate is 35%.

	Analyzer 1	Analyzer 2
First cost, $	150,000	225,000
Operating expenses, $ per year	30,000	10,000
MACRS recovery, years	5	5

a. The Biotech president, who is very tax conscious, wishes to use a criterion of minimizing total taxes incurred over the 3 years of the contract. Which analyzer should be purchased?

b. Assume that after 3 years the company will sell the selected analyzer. Using the same total tax criterion, does either analyzer have an advantage? The selling prices are expected to be $130,000 for analyzer 1 and $225,000 for analyzer 2.

Reference no: EM131006426

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