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A manufacturing company is considering replacing a broken metal cutting machine. Several options have been proposed: Option 1: The broken machine can be sold today
A manufacturing company is considering replacing a broken metal cutting machine. Several options have been proposed: Option 1: The broken machine can be sold today for $2, 530. Option 2: It can be overhauled completely for $8,000, after which it will produce $1,000 in annual cash flows over the next five years. The resale value of the asset at the end of five years is zero. Option 3: It can be replaced for $20,000. The life of the replacement machine is five years, and it has an estimated salvage value of $3,000 at the end of five years. The anticipated operating cash flows for each year will be $6,000. If the firm's required rate of return Is 15%, what should the company do
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