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A company buys a machine for a $1000. The machine's Salvage value would be $800 at the end of year 1, $600 at the end
A company buys a machine for a $1000. The machine's Salvage value would be $800 at the end of year 1, $600 at the end of year 2, and $400 at the end of year 4. The operating cost for the machine is estimated to increase every year due to increased maintenance. This cost would be $ 100 in year 1, $200 in year 2, and $300 in year 3. The company wants to know how long to keep the asset (i.e., how often to turn it in and get a new one.) The company uses the Equivalent Uniform Annual Cost (EUAC) method to make a decision and an annual interest rate of 10%. Which option, i.e., keeping it for 1, 2, or 3 years has the lowest EUAC and what is that EUAC
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