Which machine should united automation sell

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Reference no: EM133331709

Question: As a result of improvements in product engineering, United Automation needs only one of the two milling machines it currently owns. It is considering selling one of them. Both machines perform the same function but differ in technology. Assume revenues of $100,000 for both machines. Machine A could be sold today for $50,000. Machine A's before-tax operating costs are $20,000 a year, but in Year 5 the machine A will require a $20,000 overhaul. Thereafter, before-tax operating costs for machine A will be $30,000 until the machine A is finally sold in Year 10 for $5000.

Machine B could be sold today for $25,000. If machine B is kept, it will need an immediate $20,000 overhaul. Thereafter before-tax operating costs of machine B will be $27,000 a year until the machine B is finally sold in Year 10 for $8,800.

Both machines are fully depreciated for tax purposes. Overhaul costs are tax-deductible in the year incurred. The tax rate is 35%. The cost of capital is 12%. There is no inflation.

Which machine should United Automation sell?

Reference no: EM133331709

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