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3. Deciding between two machines Our landscaping business is now considering the purchase of one of two acceptable pieces of equipment. Each of these two
3. Deciding between two machines Our landscaping business is now considering the purchase of one of two acceptable pieces of equipment. Each of these two pieces of equipment is expected to have individual advantages. The Office Manager who has calculated the information below is quite conservative and likes to rely on the Accounting Rate of Return (ARR) as the chief decision-support tool. The assistant office manager, on the other hand, is a new business graduate and has worked out the expected Internal Rate of Return (IRR) for the two items of equipment as shown below. ARR (96) IRR (96) Equipment A 40 16 Equipment B 35 18 Required. a. What more financial information does the company owner need to makea. decision? 2 mark. b. Would you as the owner rely only on this information to make a decision? If not, why not? 2 mark. c. If the calculated returns all exceed the entity's required minimum rate, which design would you recommend to the owner? Why? 3 marks
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