Pactiv Corp is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 14 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $415,000, annual operating costs of $28,300, and a 4-year life. Machine B costs $300,000, has annual operating costs of $45,100, and a 3-year life. The firm currently pays no taxes. Which machine should be purchased and why?
Machine A; because it will save the company about $3,589 a year
Machine A; because it will save the company about $5,217 a year
Machine B; because it will save the company about $4,120 a year
Machine B; because it will save the company about $6,343 a year
Machine B; because it will save the company about $2,760 a year
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