Precision dyes is analyzing two machines to determine which one it should purchase. the company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. ignore bonus depreciation. machine a has a cost of $462,000, annual aftertax cash outflows of $46,200, and a four-year life. machine b costs $898,000, has annual aftertax cash outflows of $16,500, and has a seven-year life. whichever machine is purchased will be replaced at the end of its useful life. which machine should the company purchase and how much less is that machine's eac as compared to the other machine's?

Machine A EAC:  $ 208,723.12

Machine B EAC:  $ 232,343.62

Machina will be better as it has a lower equivalent cost

Explanation:

we will calcualte the net present value of the machines and from there the equivalent annual cost:

Net present value: investment + cash outflow

Machine A

C46,200

time4 years

15% discount rate = 0.15

PV$131,900

462,000 + 131,900 = $593,900

Now we calcualtethe PTM of a 4 years annuity which present value is 593,900

PV  $595,900.00

time4

rate0.15

$  208,723.123

Machine B will be the same procedure:

C16,500

time7

rate0.15

PV$68,647

NPV = $966,647

PV  $966,647.00

time7

rate0.15

C  $ 232,343.624

explanation:

the contractual interest rate is the interest the borrower must pay and the interest the lender receives, or more simply, it is the interest rate stated on a bond whereas the market interest rate is “the investors demand for loaning funds”. therefore, bonds can either be sold at a premium, face value, or discount.

answerjointly by the fed and by the behavior of individuals who hold money and of banks in which money is held;