1. There is a project that involves rebuilding a machine and having the machine last for five more years and an alternative project to buy a new machine which would last for ten years. A project like this is available at the end of either machines life so we need to compare our alternatives using the equivalent annuity technique. The rebuild option with a five-year life will use a present value interest factor for five years to calculate the equivalent annuity. The new machine with a ten-year life will use a present value for ten years. Given these unequal lives do you include the salvage value of the existing machine in the cash flows for the rebuild five-year option or include this salvage value in the cash flows for the new machine option?

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