Which machine should be purchased and why

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Precision Mfg. is trying to decide which one of two machines to purchase. Machine A costs $854,000, has a life of 8 years, and requires $147,000 in pretax annual operating costs. Machine B costs $798,000, has a life of 11 years, and requires $104,000 in pretax annual operating costs. Either machine will be depreciated using the straight-line method to zero over its life. Neither machine will have any salvage value. Whichever machine is selected, it will never be replaced. The discount rate is 13 percent and the tax rate is 35 percent. Which machine should be purchased and why?

Reference no: EM131981514

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