Precision Dyes is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. Ignore bonus depreciation. Machine A has a cost of $462,000, annual aftertax cash outflows of $46,200, and a four-year life. Machine B costs $898,000, has annual aftertax cash outflows of $16,500, and has a seven-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should the company purchase and how much less is that machine's EAC as compared to the other machine's?
A) A; $24,321.02
B) A; $17,404.04
C) B; $16,791.08
D) B; $23,156.82
E) B; $17,521.94

Question

Quizplus · Accepted Answer

Machine A has a lower EAC than Machine B. The EAC for Machine A is $34,795.98, while the EAC for Machine B is $52,117.00. The difference in EAC is $17,404.04.

Precision Dyes Is Analyzing Two Machines to Determine Which One