Problem
You need to choose between two machines based on the following information: Machine 1 has a 4-year life, and costs $322,500 with pre-tax operating costs of $64,500 per year. Machine 2 has a 3-year life, and costs $425,250 with pre-tax operating costs of $39,600 per year. Both machines have a salvage value of $22,500 and are classed with a CCA rate of 18% per year. The company tax rate is 30% and the discount rate is 10%.
i. What is the EAC?
ii. Which machine would you select as an investment?