Suppose Summit is considering automating of an existing production process. The automation will increase gross profit by $220 per year. For this automation, Summit needs to purchase the machine either from China or Korea. The Korean machine must be replaced after three years. With their extensive debt problem, Summit wants to carefully assess the machine purchase option. If they purchase from China, the initial cost will be 200 and $10 per year will be required to operate. Already the company has extensive business risk. Managing additional risk can be extremely difficult for the company and therefore, the company is very careful regarding their equipment purchase. The Chinese machine must be replaced after two years. If the machine is purchased from Korea, the initial cost will be 240 and $8 per year will be required to operate. Ignoring taxes, which particular machine Summit should choose if they use a 10 percent discount rate. Show detailed calculation.

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The present value of the Chinese machine is PV 200 10 1 01 10 1 ... View the full answer