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1. Salalah company is planning to replace its old machine with a new model machine. Company can choose one from the two models available in
1. Salalah company is planning to replace its old machine with a new model machine. Company can choose one from the two models available in the market (Model X or Model Y) with an equal investment of OMR 400,000. The additional cost of utilities of Model X and Model Y are OMR 100,000 and OMR90,000 respectively. The old machine can be sold for OMR 50,000. The earnings from Model X and Model Y are expected to be: Year 2 3 Model X 190,000 180,000 150,000 Model Y 200,000 180,000 185,000 The cost of capital is 10%. At the end of third year the machine X and Machine Y can be sold for OMR30,000 and OMR40,000 respectively. You are required to evaluate and suggest the best option by using NPV method. (PV@10%. Y7.9091, Y2.8264, 73.7513, 84.6830)
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