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A company must choose between two machines
A company must choose between two machines. Machine A costs $100 000 and the annual operating expenses are estimated to be $40 000, while Machine B costs $160 000 and has estimated annual operating expenses of $25 000. Both machines have a 10-year life and will have a zero residual value. Required: A. The company has a required rate of return of 12 per cent per annum. Which machine should it purchase? (16 marks) B. Rework the problem for an 8 per cent required rate of return. (14 marks)
Expert Solution
a. As EAC for Machine B is less than Machine A. So, Machine B should be purchased.
b. As EAC for Machine B is less than Machine A. So, Machine B should be purchased.
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