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Machine A Machine B
Type of Equipment General purposes Special Purpose
Installed Cost $8,000 $13,000
Salvage Value 800 3,000
Annual Labor Cost 6,000 3,600
Estimated Life (yrs) 10 5
In adding a new product line, a firm needs a new piece of machinery. An investigator of suitable equipment for the production process has narrowed the choice to the two machines listed.
Assume that at the end of five years, a comparable replacement for Machine B will be available. Using present-value analysis with a 10 percent interest rate, which machine would you choose?
