A construction company has a floor polishing machine which has a current investment value estimated to be $3,500. The machine uses the full time of one operator and $2,000 worth of polishing materials a year. The salesman who sold this machine is offering an improved model costing $4,500. The machine uses the same labor but requires only $1,700 worth of polishing substances a year. The remaining economic life of the existing machine is estimated to be 4 years and that of the new one, 7 years. Both will have zero salvage. Compare the alternatives by using the rate of return method. Use annual equivalent values in your analysis. Use the "Outsider Viewpoint" method.

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SOLUTION The rate of return method compares the annual equivalent values of the alternatives and determines the rate of return for each option The opt... View the full answer