Suppose that your company has won a bid for a new projectpainting highway signs for the local
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Suppose that your company has won a bid for a new project—painting highway signs for the local highway department. Based on past experience, you are pretty sure that your company will have the contract for the foreseeable future, and now you have to decide whether to use machine A or machine B to paint the signs: Machine A costs \($20,000\), lasts five years, and will generate annual after-tax net expenses of \($2,500\). Machine B costs \($12,000\), lasts three years, and will have after-tax net expenses of \($3,500\) per year. Assume that, in either case, each machine will simply be junked at the end of its useful life, and the firm faces a cost of capital of 12 percent. Which machine should you choose?
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