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A company is planning to sell 250,000 erasers per year for 5 years at a selling price of $45 per unit. You have two alternatives:
A company is planning to sell 250,000 erasers per year for 5 years at a selling price of $45 per unit. You have two alternatives: Alternative 1: buy a machine for two million to operate it for 5 years. Material and operating costs are 20 per unit. The machine can be depreciated on a straight-line basis over 4 years. It has no salvage value. Assume the machine is purchased in the year immediately prior to the year sales begin. They offer the company a credit for one million that they would deliver in the year in which the machine is acquired, they would charge a current interest of 32% per year, payable in advance for six months, and must pay it in 3 equal annual installments. Alternative 2: Buy the erasers from another manufacturer for 23 pesos per unit. The income tax rate is 30%. The chance rate is 10%. To optimize the investment you must choose: * A) Alternative 1 B) Alternative 2
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