A Firm Is Evaluating Two Machines

Multiple Choice

A firm is evaluating two machines. Both machines meet the firm's quality standard. Machine A costs $40,000 initially and $1,000 per year to maintain. Machine B costs $24,000 initially and $2,000 per year to maintain. Machine A has a 6-year useful life and machine B has a 3-year useful life. Both machines have zero salvage value. Assume the firm will continue to replace worn-out machines with similar machines, and the discount rate is 7%. Which machine should the firm purchase?

A) Machine A
B) Machine B
C) The firm is indifferent to the two machines
D) Can't tell from the given information