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1. A company is deciding whether or not to buy a machine. The machine costs $45,000 and is expected to generate net cash flow for
1. A company is deciding whether or not to buy a machine. The machine costs $45,000 and is expected to generate net cash flow for the business as follows: Year 1 $12,000 Year 2 $18,000 Year 3 $26,000 The companys applicable interest rate is 12% on the machine That is, the company will only invest in the machine if the cash flow it receives generates a return of 12% or more. (In practice this rate is often based on the companys cost of capital). Should the company buy the machine? Why or why not?
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