Ellay steel corp. is evaluating two different steel bending machines using its WACC of 7.5%....
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Ellay steel corp. is evaluating two different steel bending machines using its WACC of 7.5%. Machine A costs $320,000, has a three-year life, and has pre-tax operating costs of $83,000 per year. Machine B costs $495,000, has a five-year life, and has pre-tax operating costs of $42,000 per year. Both bending machines are in Class 8 (CCA rate of 20% per year). Recall that Ellays tax rate is 35%.
Assume that there is no salvage value for both machines and compute the EAC for each one.
Which one would be chosen by Ellay corp? Why?
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