Two machines to determine which one company should purchase

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Reference no: EM13806032

Timothy McEnrie, the Chief Financial Officer (CFO) of Atlanta Brewery Corporation (ABC), is analyzing two machines to determine which one the company should purchase. ABC is a small-sized beer producer catering mainly to the southern parts of the United States. The company is looking into opening up an additional production line and has identified two manufacturers to supply it with a grain processing machine. McEnrie has identified Machine A from one manufacturer and Machine B from another manufacturer. Atlanta Brewery Corporation requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $2,900,000, annual operating costs of $80,000, and a 3-year life. Machine B costs $1,800,000, has annual operating costs of $120,000, and has a 2-year life. Assume a zero tax rate. Whichever machine is purchased will be replaced at the end of its useful life.

Which machine should Timothy McEnrie advise the company to purchase and why? Please show work.

Reference no: EM13806032

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