Precision Mfg

Multiple Choice

Precision Mfg.is trying to decide which one of two machines to purchase.Machine A costs $854,000,has a life of 8 years,and requires $147,000 in pretax annual operating costs.Machine B costs $798,000,has a life of 11 years,and requires $104,000 in pretax annual operating costs.Either machine will be depreciated using the straight-line method to zero over its life.Neither machine will have any salvage value.Whichever machine is selected,it will never be replaced.The discount rate is 13 percent and the tax rate is 35 percent.Which machine should be purchased and why?

A) Machine A because its NPV is about $114,558 higher than Machine B's NPV
B) Machine A because its NPV is about $64,217 higher than Machine B's NPV
C) Machine A because its EAC is about $83,404 lower than Machine B's EAC
D) Machine B because its NPV is about $95,188 higher than Machine A's NPV
E) Machine B because its EAC is about $83,404 lower than Machine A's EAC