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RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will...

RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will be replaced at the end of its life. Both machines cost $1,800. Machine A has a 4-year life, a salvage value of $800, and expenses of $525 per year and will be depreciated down to $800. Machine B has a 5-year life, a salvage value of $300, and expenses of $500 per year. Machine B will be depreciated down to a book value of $300. Assume conditions of straight-line depreciation to the salvage value, a tax rate of 35%, and a discount rate of 18%. Which machine should RELO choose and why?

Machine A because it has a lower present value of total costs

Machine B because it has a lower present value of total costs

Machine A because it has a lower EAC

Machine B because it has a lower EAC

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