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A motor car manufacturing firm has decided to invest in a new equipment to improve its production process. The following are the cost of both
A motor car manufacturing firm has decided to invest in a new equipment to improve its production process. The following are the cost of both equipment and the expected cash flow from each. The required rate of return is 10%.
Equipment A Equipment B
Cost: $300,000 $400,000
Cash flows $ $
Yr 1 40,000 50,000
Yr 2 60,000 55,000
Yr 3 70,000 80,000
Yr 4 75,000 85,000
Yr 5 70,000 80,000
Yr 6 90,000 70,000
Required
You are the Management Accountant, advise the firm which equipment should be purchased and why.
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