Great Enterprises Is Analyzing Two Machines to Determine Which One

Multiple Choice

Great Enterprises is analyzing two machines to determine which one they should purchase. The company requires a 13% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $285,000, annual operating costs of $8,500, and a 3-year life. Machine B costs $210,000, has annual operating costs of $14,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Great Enterprises should select machine _____ because it will save the company about _____ a year in costs.

A) A; $10,688
B) A; $17,716
C) B; $5,500
D) B; $14,987
E) B; $16,204