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13Concord Cotton is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its
13Concord Cotton is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 15 percent rate of return and uses straightline depreciation to a zero book value over the life of the machine. Machine A has a cost of $700,000, annual operating costs of $57,000, and a 8year life. Machine B costs $350,000, has annual operating costs of $120,000, and a 5year life. The firm currently pays no taxes. Which machine should be purchased and why?
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