Question: A mining company is considering purchasing a machine (Machine A) that costs $30,000 and is expected to last 12 years, with a salvage value of
A mining company is considering purchasing a machine (Machine A) that costs $30,000 and is expected to last 12 years, with a salvage value of $3,000. Annual operating costs are expected to be $9,000 for the first 5 years; of $10,500 per year for the next 4 years, and finally $12,000 in the last 3 years of its useful life. Another alternative for the company is to purchase a highly automated machine (Machine B) at a cost of $58,000. This machine has a useful life of 12 years, given its high technology and specialized design, its operating costs would only be $4,000 per year on a constant basis during the 12 years, while its salvage value at the end of this period is estimated at $12,000. . If the attractive minimum rate of return (MARR) for the company is 20% effective per year, determine the Net Future Value of each of the machines and determine the best option.
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