Reference no: EM132107488

Question - Swanson, Inc. is considering the purchase of two machines. Machine A will cost $12,000 and will reduce labor costs by $3,000 per year. Machine A has a salvage value of $3,500 after its seven year life. The other machine, Machine B, will cost $10,000 and will produce a labor savings of $2,500 per year. Machine B has a salvage value of $4,000 after its five year life. Machine A will require maintenance at the end of year five costing $3,000. Machine B will require maintenance at the end of year three costing $2,000. Assume Swanson, Inc. employs a cost of capital of 15% on all capital budgeting decision. Which machine(s) should Swanson, Inc. purchase? Ignore the effects of income taxes.