Question: FFC is considering the replacement of its old , fully depreciated knitting machine . Two new models are available . Model E has a cost

FFC is considering the replacement of its old , fully depreciated knitting machine . Two new models are available . Model E has a cost of $ 190,000 and has a life of 3 years and generates after tax cash-flows of $87,000 per year. Model G has a cost of $ 360,000, a six- year life, and generates an after tax cash-flow of $ 98,300 per year. FFC cost of capital is 14%. Which new machine should it buy: Model E or Model G? How much would the value of the company increase if it purchased the better machine ?

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