Question: Firm 2X has a machine it can purchase for $8,000,000 today. It can sell the machine for the following prices at the end of each

Firm 2X has a machine it can purchase for $8,000,000 today. It can sell the machine for the following prices at the end of each given year over its 3 year useful life (prices given are net of any tax effects of gain or loss on sale).

Year Market Value

0 8,000,000

1 6,100,000

2 4,000,000

3 2,600,000

If the machine generates $3,500,000 in net cash flows each year and the discount rate is 6%, how often should the firm replace the machine?

Provide step-by-step calculation. No Excel calculation allowed.

Answer = EACF 1323807

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