You Are Considering the Purchase of One of Two Machines

Multiple Choice

You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance. Machine B has an initial cost of $90. It requires $40 in maintenance for each year of its 3 year life. Either machine must be replaced at the end of its life. Which is the better machine for the firm? The discount rate is 15% and the tax rate is zero.

A) Machine A as EAC for Machine A is $100.76
B) Machine B as EAC for Machine B is $79.42
C) Machine A as PV of costs for Machine A is $163.80
D) Machine B as PV of costs for Machine B is $181.33