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4. Capital Investment (2 points) Stars Company is considering purchasing one of two new machines. The following estimates are available for each machine: Machine 1
4. Capital Investment (2 points) Stars Company is considering purchasing one of two new machines. The following estimates are available for each machine: Machine 1 $152,000 54,000 15,000 6 years Machine 2 $169,000 64,000 20,000 6 years Initial cost Annual cash inflows Annual cash outflows Estimated useful life The company's minimum required rate of return is 10%. Present Value of an Annuity of 1 12% 4.111 Period 8% 4.623 11% 4.231 15% 10% 4.486 3.784 4.355 Instructions (a) Compute the (1) net present value, (2) profitability index (1 point) (Show your computation) (b) Which machine should be purchased? Why? (1 point)
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