Compare the two scenarios for acquiring a machine for a project for 22 years expected operations, at
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Question:
Compare the two scenarios for acquiring a machine for a project for 22 years expected operations, at a company with an internal rate of return of i = 16%. Using PW, find which scenario is better.
Scenario
1. Buy an initial small machine at $13,000, it cost $2,400/year to run for the first 12 years, buy a second larger machine at $26,000 and run it for 10 years at a cost of $4,000/year. There is no salvage value at the end of service for either machine. Scenario
2. Buy a large machine for $36,000 and run it for 22 years at a cost of $1,000/year. At the end of the 22 years, the machine is assumed to have a salvage value of $5,000.
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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