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A Corporation is planning to install an electrical generator to meet its electricity requirements.The generator will be replaced when it wears out.Maple has a choice
A Corporation is planning to install an electrical generator to meet its electricity requirements.The generator will be replaced when it wears out.Maple has a choice between two machines.Machine A costs $500,000 and will generate after-tax cash savings of $250,000 per year over its 3-year life.Machine B costs $800,000 and will generate after-tax cash savings of $300,000 per year over its 5-year life.
If the cost of capital is 17%, which machine should be chosen making sure to adjust for the unequal lives?
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