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?

Answer rating: 100% (QA)

To determine how often the firm should replace the machine we need to compare the present value of t... View the full answer